Name: Buffett on Auto Business
Uploaded: 2014-10-07
Duration: 2 min 38 s
Description: Buffett on Auto Business

You announced that you were buying the fifth largest Auto, insur, Auto insurance, Auto dealership in the country, the entile group of Phoenix. Now, there may even be some people in the audience who think of the car business as ethically, channeled, challenged, but, at any rate, what I'd like you to do is spend a, A, a paragraph or two talking about what, by Buffett standards, is a good business. And then go into why does the car dealership business look like a good business to you? A good business is the one that earns a high rate of return on, on tangible assets. [ LAUGH ] [ LAUGH ] Very simple. That's pretty simple. Yeah. And, and the very best businesses. Are the ones that earn a high rate of return on tangible assets. And, and grow. But even ones that don't grow. The earn a high return on tangible assets. And then of course if you don't pay too much they can be a good investment. They're a good business to start with by the high returns. If you pay to much for them. You can turn A good business into a bad investment. But if you pay an appropriate price you can you can do all right. Now the, the big mistake that we made in early years, was to try and buy a bad business at a really cheap price and it took me about 20 or 30 years to figure out that wasn't a good idea. [ LAUGH ] But this is a. The car business, the car dealership business if run well can be a very good business. You, you have no receivables to speak of. Your floor plan, your inventory. You can, you can lease your real estate. We don't do that. We all own 95 % of our real estate. So you can have very little capital actually invested in the business. And you do a, you do a large volume of van tile which we bought, has 78 dealerships, they'll average over $ 100 million a dealership. So, you can work on fairly narrow margins and still earn a high return on capital if you don't tie up much capital into 100 million. And how many car dealerships in total in the United States. Well they're over 17, 000 car dealerships in the United States and the interesting this is if you go back 40 or 50 years there were in the 30, 000 so while the country has grown dramatically and actually the number of name plates in the in the car business has grown. You cut the dealerships almost in half. So the average dealer now does far, far greater volume than when I was growing up. Well, by all means visit a Berkshire Hathaway, car dealership and the next year, report back.