Followers of Warren Buffett may have noticed that the other week Berkshire Hathaway finalised its acquisition of the USA's largest, privately owned car dealership group.
According to a report by the Financial Post, the purchase represents the biggest acquisition in automotive retail history! From a standing start, Berkshire Hathaway now can boast of a division that houses 81 car dealerships with annual revenues of over US$9 billion – it's a significant footprint and one which Buffett is keen to see grow.
Interestingly, other Buffett admirers and fellow billionaires are already exposed to the sector with both Bill Gates and Eddie Lampert shareholders in AutoNation Inc with holdings of 15% and 12% respectively. AutoNation Inc is a US$7.1 billion company with over 200 domestic and import franchises which represent over 23 manufacturer brands.
Buffett appears to be attracted to the economics of car dealerships.
According to the same article in the Financial Post, returns on investment in the car dealing sector are between 10% and 20%. Given Buffett's apparent enthusiasm for the business economics of car dealing, it could be worth Australian investors taking a closer look at the following two listed companies…
AP Eagers Ltd (ASX: APE) – The group has a 57-year track record as a listed company of paying a dividend every year. Add to this a property portfolio valued at $278 million and over 110 dealerships located throughout Queensland, Northern Territory, New South Wales, Victoria and South Australia and you have an impressive company. It also represents all 12 of the top 12 selling car brands in Australia and 27 car brands in total along with 11 truck and bus brands.
Automotive Group Holdings Ltd (ASX: AHE) – The group holds an approximate 6% national market share in new car sales via its 167 franchises at 95 dealership locations across Australia and New Zealand. The company also operates Australia's largest refrigerated food transport and warehousing provider and has attracted the attention of its peer AP Eagers, which holds 19.9% of Automotive Group's shares.
