Reports suggest that talks are well underway between business magnate George Soros and major dealership groups
First it was computer tycoon Michael Dell and the former President of Sonic Automotive, Jeffry Rachor, who entered the retail automotive business.
Then, Edward Lampert and Bill Gates bought into AutoNation – the United States’ number one dealership chain. And most recently, billionaire Warren Buffett purchased the Van Tuyl chain of 78 dealerships through his company Berkshire Hathaway.
Closer to home American billionaire Roger Penske recently signed a deal with MTU Detroit Diesel and V8 Supercar Team Dick Johnson Racing.
Now people are speculating that billionaire George Soros wants to travel down the same road and buy a large US retail automotive group after two of his executives were spotted meeting with Dealers at NADA in San Francisco earlier this year.
For those who are not familiar with George Soros or his business dealings, he is a Hungarian-born American businessman, investor, and philanthropist.
He is the chairman of Soros Fund Management which is currently in talks with an undisclosed number of dealership groups.
Soros is also known as ‘The Man Who Broke the Bank of England’ because of his short sales of US$10 billion worth of pounds, giving him a profit of $1 billion during the 1992 Black Wednesday UK currency crisis. He is, unsurprisingly, one of the thirty richest people in the world.
So what’s the big attraction for Soros in buying dealerships?
Firstly, automotive dealerships represent a unique opportunity for Soros to diversify his fund’s holdings and boost his cash flow.
While profit margins in retail automotive are getting slimmer, helped in part by the price transparency provided by the internet, ‘cash flow is (still) king!’ thanks to new and used car sales, service, insurance and finance.
Furthermore, industry observers say that large numbers of vehicles will be coming off lease in the next few years which means owners will need to replace them with new models.
Then there’s the security of Dealers’ PMAs which in the US are protected state laws.
Another bonus for Soros – and other cashed-up investors, is that dealerships are relatively easy to buy, although much harder to run.
On the other side of the coin, OEMs are not that enamoured with Private Equity funds owning dealerships as in the past they have tended to buy-in then load up the ‘shop’ with debt only to off-load them down the track.
Also, corporate taxes in the US are as high as the costs of funding vehicle inventories and dealership renovations requested by automakers.
While some may argue that Soros doesn’t have the necessary skills and experience to successfully run a large dealership group, he may follow Warren Buffet’s lead and leave the original management team and culture in place to do what it does best.