EPIC EVENT: Warren Buffet, the smartest investor ever, Buys Car Dealerships.

[Chris Cachor]

The cheap capital to me is a biggie. We've gone through a quite a business cycle during the past 5-6 years (and financial crises every 7/15 yrs). Dealers are more sensitive to high interest rates, so I think having Berkshire capital puts them in a massively advantageous position when interest rates rise. Like Marcus said, the scale doesn't really help them with purchases but it does for operations.

I don't know if I'm a fan of the name "Berkshire Hathaway Automotive". It sounds too rich to me (think Rubloff or Sothebys). I'd rather have a Berkshire logo on my checks than my bumper

 

[craigh]

Warren Buffett, Risky Car Salesman - Bloomberg View

Interesting read.

Another question is whether the "moats" that protect auto retail are as strong as some analysts believe. Certainly, auto retail enjoys bigger profits and stronger regulatory protection than other parts of the industry, but that simply makes it a target for long-term disruption. Though peace has been made between dealers and online lead generators such as TrueCar, the threat of consumer dependence on Web-based leads remains a concern for dealers, pushing them to invest in areas outside their core competency.

It's unlikely that Buffett -- who called his latest move the first step in a larger push into auto retail -- is unaware of these factors. Indeed, the fact that his initial buy-in is just part of a broader consolidation play suggests he foresees tough times ahead for auto retailers. Scale is a critical advantage in new car sales, as is a diversified brand portfolio. If sales volume stalls and credit starts to tighten, more marginal players will come under pressure and provide Berkshire with acquisition opportunities that could unlock huge scale.