2015: Why are auto dealerships an attractive business?

GREGGORY WARREN: Thank you, Warren. I just wanted to circle back and add on to Jonathan’s question on Van Tuyl Group.

What is it that attracted you most to the deal? Potential for consolidation in a highly fragmented industry, which would allow you to put some of your excess capital to work, or the unique positioning in the auto chain of the auto dealer sector, which has its hands not only in auto sales but financing insurance and parts and services?

I know that Charlie just said that he’d like to do more deals like it, but where do you feel the greatest return will come from longer term? Rolling up auto dealerships or tapping into the advantages that are inherent in the full service model?

WARREN BUFFETT: Yeah. There are not any huge advantages of scale, at least that I’m aware of, in owning lots of dealerships. But running dealerships well is a very good business. It’s a local business.

So I don’t see that having some — there’s 17,000 dealers in the country, and if you ask the people here in Omaha to name a bunch of dealers, they’d come up with a bunch of local names.

And I don’t think that you widen profit margins, particularly, by having a thousand dealers versus having a hundred or even having one very good dealer.

So we will be buying, I hope, more dealerships, but it will be based on local considerations.

We don’t see the finance business, in dealers — we don’t bring anything to that party.

[CEO] John Stumpf is here from Wells Fargo. I think they’re the biggest auto finance company in the United States. And they have a cost of funds advantage over Berkshire.

Berkshire is able to borrow money at a low price, but I forget whether John’s liabilities cost him something like 12 basis points or something like that last quarter. And we can’t come up with money as cheap as the banks can, and they’re the natural lenders for loans, so we’re not going to be in the finance business.

We will keep looking for dealerships, maybe groups of dealers. It doesn’t give us a buying advantage from a manufacturer. And we will hope that we run those local operations very well and that they’re regarded by the people who buy cars as a local business, not some part of some giant operation.

So, I think you’ll see us buying more, but I don’t think you’ll see us widening out margins from what existed before, except in the cases where we can run a local dealer better.

Charlie?

CHARLIE MUNGER: Yes. And Van Tuyl has a system of meritocracy where the right people get the power and get some ownership.

So on the — it reminds me a lot of the Kiewit Company, an Omaha company and whose headquarters Berkshire resides as a tenant. And the Van Tuyl and Kiewit are kissing cousins. Those are very successful cultures, and I think they’ve got a very good thing going for them. The right people are prospering in Van Tuyl.