Buffett Drives the Gravy Train for Public Auto Dealership Sector

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With news that Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) have gotten into the car dealership business with an acquisition of the privately held VanTuyl car dealership, 24/7 Wall St. wanted to see what this means for the rest of the industry of new car dealerships. This remains a highly fragmented business, and there are still thousands upon thousands of dealership families around the United States.

Buffett went on CNBC to discuss his announced acquisition on Thursday morning, and he did signal that this would likely lead to many more dealership acquisitions. That makes it of little to no surprise that the stocks of the publicly traded auto dealers are trading higher on the news. AutoNation Inc. (NYSE: AN) was of course higher, particularly with Bill Gates being an owner of the company, but Warren Buffett said he has no interest in acquiring AutoNation in the same breath as he praised Chairman and CEO Mike Jackson.

Asbury Automotive Group Inc. (NYSE: ABG) has roughly 80 retail auto stores in the southeast and south-central parts of the United States. Asbury’s revenue was $5.33 billion in 2013. Its market cap is right at $2 billion, and its shares have a 52-week trading range of $45.31 to $73.35. Asbury shares were up 4% at $65.80 right after the open.

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Group 1 Automotive Inc. (NYSE: GPI) has 152 dealerships, 194 franchises and 38 collision centers. It operates in metro areas in Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, Oklahoma, South Carolina and Texas. Revenue in 2013 was $8.9 billion. Group 1’s market cap is about $1.7 billion, and it has a 52-week trading range of $59.37 to $87.38. Its stock was up 2.7% at $72.60 shortly after the opening bell.

Lithia Motors Inc. (NYSE: LAD) had 101 dealerships across 12 states on its latest count, representing 29 brands, and revenue in 2013 was 44 billion. Lithia’s market cap is right at $2.05 billion, and it has a 52-week trading range of $53.57 to $97.20. Its shares were up over 6% at $78.30 right after the opening bell.

Penske Automotive Group Inc. (NYSE: PAG) had more than 300 dealerships at the end of 2013 selling new and used motor vehicles, spread over 35 brands. Penske had sales of $14.7 billion in 2013. Its shares were up over 3% at $41.40 right after the market open. Its market cap is almost $3.75 billion, and Penske shares have a 52-week trading range of $37.07 to $51.44.

Sonic Automotive Inc. (NYSE: SAH) counted over 120 franchises in more than 14 states, and its revenue in 2013 was over $8.8 billion. Sonic’s shares were up 3.6% at $24.90 right after the opening bell, and its market cap is just over $1.3 billion. Sonic’s 52-week trading range is $21.05 to $27.87.

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It is without surprise that these stocks were higher. Having a shark the size of Warren Buffett buying up dealerships should offer a solid base. That being said, these publicly traded dealership stocks look larger on the surface than the 78 or so locations of Van Tuyl. Below is part of the data taken from the National Automobile Dealers Association (NADA) showing the consolidation that has been seen over the past decade:

Number of Franchised New-Car Dealerships (NADA), by year and by count

2000  22,250
2001  22,150
2002  21,800
2003  21,725
2004  21,650
2005  21,640
2006  21,495
2007  21,200
2008  20,770
2009  20,010
2010  18,460
2011  17,700
2012  17,540