Wall Street powerhouse Soros Fund Management has made its much-anticipated leap into the U.S. auto retail sector, investing in a group that has just acquired eight stores in Missouri and plans to buy more dealerships, Automotive News reported.
The "family office" for billionaire financier George Soros has provided financing for McLarty Automotive Group, along with investment arms for the families of drugstore enterprise founder Stephen LaFrance Sr. and transportation mogul J.B. Hunt.
The McLarty group was founded last year by industry veteran Mark McLarty.
Last month, McLarty Automotive acquired eight stores that sell 14 brands from Joe Machens Dealerships. The stores are mostly in central Missouri, Automotive News reported.
At the National Automobile Dealers Association convention in January in San Francisco, Soros representatives told buy-sell advisers and dealers they were ready to acquire U.S. dealerships, and were prepared to invest up to $1 billion, Automotive News reported.
A representative of the Soros fund did not respond to requests for comment, the report said.
Soros is interested in the car business as a way to diversify his fund's holdings and cash flow opportunities, and buying a large dealership group was one option, the sources told Automotive News, Reuters reported.
Meanwhile, Fortune explained that the wealthy and powerful are lured by auto investments.
Bill Gates owns 15% of AutoNation, itself a rollup of individual dealerships created by billionaire Wayne Huizenga, who got his start hauling garbage.
The Soros deal follows a similar move last year by Buffett's Berkshire Hathaway Inc., which announced the purchase of the Van Tuyl Group auto dealership.
"What is the investment allure of car dealerships? Since dealerships are franchises granted by automakers, they represent a type of cartel, well protected by state laws. Auto dealers cooperate to limit competition, though dealers often quibble about whether the automakers allocate their territories fairly," Fortune explained.
"Although profit margins on vehicles have been getting slimmer due to increasing price transparency made possible by the Internet, cash flow remains prodigious (“cash is king!”) from consumer purchases of used and new vehicles, maintenance, insurance and financing."
(Newsmax wire services contributed to this report).
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