Warren Buffett has made billions betting on companies that others shun.
Now, in another seemingly contrarian move, the Oracle of Omaha is investing in auto dealerships, an industry under threat from online car buying services and changes in the driving habits of Americans.
Buffett's massive holding company, Berkshire Hathaway Inc., said Thursday that it is buying Van Tuyl Group, which bills itself as the nation's largest privately owned auto dealership. Its sales lots include locations in Cerritos and Mission Viejo.
The acquisition comes as the auto industry is undergoing a major transformation that may one day affect sales. Young adults summon rides from strangers with smartphones or rent a car for only a few hours. Companies are developing self-driving vehicles. And Palo Alto company Tesla Motors Inc. is trying to throw a wrench into the very dealership model Buffett seeks to buy by selling cars directly to consumers.
"We are on the brink of major changes in vehicles themselves and in vehicle ownership," said Michelle Krebs, senior analyst with AutoTrader.com. "That will change the retailing portion of the business."
But Buffett doesn't appear fazed. The investor told CNBC in an interview Thursday that he views Van Tuyl as a jumping-off point for more acquisitions.
"I fully expect we'll buy a lot more dealerships over time," he said in the interview. In a statement, he said, "This is just the beginning for Berkshire Hathaway Automotive."
Cathy Seifert, an equity analyst with S&P Capital IQ, said the Van Tuyl purchase is similar to Buffett's investments in real estate brokerages and newspapers. Like those purchases, Buffett aims to invest in mature industries in flux and use Berkshire's largesse to root out inefficiencies and boost profit.
"It may not be the sexiest, it may not be the most cutting-edge, but [Van Tuyl] throws off cash, and brought under the Berkshire family of companies may be able to throw off more cash," Seifert said.
The Van Tuyl family got its start in the auto business in 1955 when Cecil Van Tuyl opened a single Chevrolet dealership in Kansas City, Mo. Now Van Tuyl, with roughly $8 billion in annual revenue, has 78 independently operated dealerships and more than 100 franchises across 10 states.
In many ways, the deal for Van Tuyl fits a larger trend of consolidation in the industry, analysts said.
The number of new-car dealers has plunged 18% over the last decade, according to the National Automobile Dealers Assn. Many smaller dealers sold out to large companies such as publicly traded AutoNation in the aftermath of the downturn, unable to sell enough vehicles in a low-margin business, said John Humphrey, senior vice president of the global automotive practice at J.D. Power & Associates.
But Humphrey called Buffett's move a "good investment," noting many dealers that remain are doing well.
Buffett said that the demand for cars is increasing and that he sees the dealership consolidation as good for his investment.
"The average dealership will do a lot more business than 30 or 40 years ago," he told CNBC.
According to the dealers association, the average dollar sales per new-car dealership is now higher than before the recession.
Berkshire Hathaway did not disclose a price for Van Tuyl. Larry Van Tuyl will step down as chief executive and assume the role of chairman.
Auto industry veteran Jeff Rachor, now with Van Tuyl, will become CEO.
Once the acquisition is completed early next year, the Phoenix company will be rebranded as Berkshire Hathaway Automotive and be based in Dallas.
Krebs of AutoTrader said that new models of dealerships probably will emerge, but that dealers have a future. Consumers, she said, still want to inspect, feel and test drive cars before making what is a significant investment.
Buffett's announcement Thursday, she said, only validates that.