As it battles state, Berkshire Hathaway aims for Austin dealership

Berkshire Hathaway Automotive has been pushing to open its first Austin car dealership — a Mercedes-Benz franchise to be located on an Interstate 35 frontage road — even though it’s unclear if it can legally own dealerships in Texas because state regulators have recommended that the licenses under which it operates its 29 other Texas car dealerships be revoked and that its application for a new one be denied.

A administrative law judge recently put the Austin plans on hold to provide time for the larger issue to be cleared up regarding Berkshire Hathaway Automotive’s potential ineligibility to own any car dealerships in the state.

But the Irving-based company, a subsidiary of billionaire Warren Buffett’s Berkshire Hathaway conglomerate, has the support of Mercedes-Benz USA, which wants a second retail location in Austin in addition to Mercedes-Benz of Austin, located at 6757 Airport Blvd.

“Mercedes-Benz is committed to adding another (dealership) to this market,” said Lloyd Ferguson, an Austin attorney representing Mercedes-Benz USA, during a recent hearing regarding Berkshire Hathaway Automotive’s application for the franchise license in Austin. “At times last year, 25 percent of the people of Austin who bought a Mercedes were going outside this market” to do so.

The plan is opposed by Continental Imports Inc., however, which owns Mercedes-Benz of Austin. Continental is formally protesting to the state, saying a new Mercedes franchise in Austin will hurt its business.

Under state law, franchise dealerships can protest the issuance of a new franchise license if a proposed new franchise is within 15 miles of them or located within the same county. Berkshire Hathaway Automotive’s proposed new Mercedes dealership would be at 10900 S. Interstate 35 frontage road — a smidgen less than 15 miles from Mercedes-Benz of Austin and also within Travis County.

As part of the protest, Continental asked that consideration of the franchise license application be put on hold because of Berkshire Hathaway Automotive’s legal predicament regarding its potential ineligibility to own dealerships in Texas. Casey Bell, an administrative law judge presiding over the case, found the request reasonable and granted the delay.

“Please don’t make us spend the hundreds and hundreds of thousands of dollars now” on market studies and economic analyses to protest the application, said Leon Komkov, an attorney for Continental, during the recent hearing. “It’s a useless, it’s a moot, process,” given the circumstances.

But Jordan Mayfield, an attorney representing Berkshire Hathaway Automotive, downplayed the significance of the recommendations by the enforcement division of the Department of Motor Vehicles, which were handed down in May and June, that all of the company’s dealership licenses be revoked.

“The parties are engaged in some discussions to try to resolve” the issue, Mayfield said during the hearing, describing the division’s recommendations as “informal” and “preliminary.”

Both Mayfield and Ferguson, the attorney representing Mercedes-Benz USA, advocated for the application process for the new license to go forward in the interim. They said Continental Imports wouldn’t be wasting money protesting it because Mercedes-Benz USA wants another franchise dealership in Austin — regardless of whether it’s ultimately owned by Berkshire Hathaway Automotive or by some other company.

Berkshire Hathaway Automotive has run afoul of a Texas law that strictly regulates who can own automobile dealerships in the state because its parent company — Buffett’s Berkshire Hathaway conglomerate — also owns a motor vehicle manufacturer.

According to the law, a company that manufacturers motor vehicles is prohibited from owning dealerships, even if the vehicles aren’t of the same type. The Berkshire Hathaway conglomerate owns Forest River Inc., an Indiana-based maker of recreational vehicles, in addition to owning the Irving-based car dealership unit.

The enforcement division of the Department of Motor Vehicles began investigating Berkshire’s ownership structure in April, and Buffett and Berkshire Hathaway Automotive have been scrambling to find a way around the law ever since.

A lobbying effort during the spring — which included a trip to Austin by Buffett himself to meet with top state leaders — failed to result in approval of a legislative fix, dubbed the “Buffett bill,” that would have permitted ownership of both a manufacturer and a dealership if the vehicles aren’t of the same type. More recently, Raymond Palacios Jr., board chairman of the Department of Motor Vehicles, requested an opinion from Texas Attorney General Ken Paxton as to whether it’s technically possible for Berkshire Hathaway to comply with the law if it “relinquishes control” of its RV manufacturer while still wholly owning it.

What’s clear is that Berkshire Hathaway doesn’t want to shed its lucrative Texas dealerships, most of which are in the Dallas-Fort Worth metro area. According to the National Automobile Dealers Association, the average U.S. dealership had about $59.6 million in sales last year, while the average luxury dealership had $94.1 million in sales.

Buffett established his conglomerate’s car dealership unit in 2015 with the $4.1 billion acquisition of privately held Van Tuyl Group. He renamed it Berkshire Hathaway Automotive and moved its headquarters to Irving.

Berkshire Hathaway Automotive owned 83 dealership at the end of 2016, including the 29 in Texas.

Jeff Rachor, chief executive of Berkshire Hathaway Automotive, called it “a $10 billion company” during an April Texas Legislature committee hearing, and said it employs 4,200 Texans. At the time, Rachor said he had only recently found out that Berkshire Hathaway had a problem with the Texas dealer ownership law.

Proponents of the strict regulations in Texas, including the politically powerful Texas Automobile Dealers Association, say the rules safeguard consumers by ensuring that automakers can’t establish monopolies. But critics of the regulations say they are protectionist measures that are designed to make sure auto dealerships continue to operate as third-party middlemen.

The law is the reason Tesla Inc. is prohibited from selling the electric cars that it makes directly to Texas consumers.


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