2014: How is Forest River growing so much faster than its competition?

JONATHAN BRANDT: Forest River is one of Berkshire’s better performing acquisitions. Since Berkshire purchased it in 2005, its sales have grown considerably faster than those of its principle competitor, Thor. And I believe it has taken the number one spot at retail for recreational vehicles.

Can you explain what Forest River is doing differently from Thor? And tell us whether Forest River is accepting lower operating margins than Thor’s 7 percent to gain the share.

Does Forest River have any sustainable, structural advantages over Thor that will help it maintain its number one position?

Also, with three companies now accounting for about 80 percent of the share in the RV market, are there greater barriers to entry than in the past, or can a feisty upstart like Forest River, in its day, still come out of nowhere and gain a lot of share?

WARREN BUFFETT: Yeah. We bought a company called Forest River, run by a fellow named Pete Liegl, I’d say about ten years ago or so.

And it’s interesting. Pete, who is not an MBA type at all, he’s a terrific guy, he built up a — (Laughter)

That was not a statement, that was an observation. (Laughter)

Pete built up a very successful, but much smaller, RV business. And he sold it to a private equity firm in the mid-1990s. And they promptly started telling him how to run it. And he, very shortly thereafter, told them to go to hell.

And, not very long after that, it went broke, which is not an unusual — I would’ve predicted that.

So Pete then bought it out of bankruptcy, and rebuilt it, and then came to see me about ten years ago.

And in one afternoon — we went to dinner that night. He brought his wife and his daughter. And we bought the business.

And he made me a couple of promises then. He’s very limited in his promises. I told him what I’d do. And we’ve lived happily ever after.

I’ve never been to Forest River. It’s based in Elkhart, Indiana. I hope it’s there. I mean, maybe they’re just making up these figures — you know?

I could see that. Some guy saying, “What figures shall we send Warren this month, you know, ha, ha, ha.” (Laughter)

Pete does a terrific job of running the company. We made a deal at the time he came, on incentive comp and base comp. He’s never suggested a change, I’ve never suggested a change.

He’s built the company to where it’ll do over — I think it’ll do over $4 billion of business this year.

I’ve probably had three or four phone calls with him in the whole time.

It’s his company. And he does a sensational job.

I don’t know about the Thor-Forest River situation in terms of how tough it is to go in to compete with him. I think it’d be tough to compete with Pete under any circumstances.

His IT department, for a $4 billion business, consists of six people. He just knows what’s going on in the place.

And the important thing is that it’s his company. I couldn’t run an RV company, and we don’t have anybody at headquarters that could run one.

It’s a tough business. And you do work on narrow margins, to get to your point on that, Jonny. The —it’s a business that runs with maybe 11 or 12 percent gross margins, and probably 5 to 6 percent of SG&A. So, you know, your margins are in that 6-or-so percent range.

We have a very good — both from his standpoint and from our standpoint — we worked out an incentive comp. Like I say, we worked it out that afternoon in Omaha when he came by.

And it’s worked for him. It’s worked for us. You know, it couldn’t be a better arrangement. I wish we had 20 like it.

And probably, most of our shareholders don’t even know we own Forest River. But that is a company that will do 4 billion of business this year, and I’ll bet will do more business over time. It’s the leader in its industry. The industry’s not going to go away.

And, you know, maybe we can even sell a little insurance on RVs. So that’s the story on Forest River.