Warren Buffett’s battle over Texas auto law could hinge on technicality

  • Bob Sechler
  • American-Statesman Staff
9:48 a.m. Friday, July 14, 2017 Business
Warren Buffett is chairman and CEO of Berkshire Hathaway. His company is at odds with a Texas law that prohibits a motor vehicle manufacturer from also owning dealerships, even if the vehicles aren’t of the same type.Nati Harnik/Associated Press

Is it possible to own a company without controlling it, or even being “affiliated” with it?

That’s the fine point of corporate governance state officials and Warren Buffett’s Berkshire Hathaway Inc. are debating and weighing.

The issue stems from Berkshire Hathaway’s efforts to maneuver around a state law that has jeopardized the conglomerate’s ongoing operation of nearly three dozen Texas car dealerships because it also owns a company that manufactures recreational vehicles, Indiana-based Forest River Inc.

State law prohibits a motor vehicle manufacturer from also owning dealerships, even if the vehicles aren’t of the same type.

However, the law defines a “manufacturer” as someone “affiliated with” a manufacturer or “controlled by” a manufacturer.

That has constituted enough potential wiggle room for Raymond Palacios Jr., board chairman of the Texas Department of Motor Vehicles, to request an opinion from Texas Attorney General Ken Paxton as to whether it’s possible for a company that wholly owns a motor vehicle manufacturer — in this case, Berkshire Hathaway’s ownership of Forest River — to “cease to be ‘affiliated with’ the motor vehicle manufacturer by relinquishing control of the manufacturer while maintaining ownership of it.”

In Palacios’ request for Paxton’s legal opinion, he doesn’t doesn’t detail precisely how that might be achieved, other than noting “it has been suggested” that Berkshire Hathaway and Berkshire Hathaway Automotive could come into compliance if Berkshire Hathaway “relinquishes control of Forest River while maintaining ownership of Forest River.” Berkshire Hathaway Automotive is the conglomerate’s dealership unit, which is based in Irving.

Berkshire Hathaway recently was found to be in violation of the Texas law by the enforcement division of the Department of Motor Vehicles, which recommended revoking licenses from 30 Berkshire dealerships in Texas and $1,000 civil penalties for each, as well as a $1,000 fine for Forest River.

The dealerships and Forest River all have asked for hearings before administrative law judges regarding the findings; none of the hearings have been scheduled yet.

Proponents of the state’s strict dealer ownership regulations, including the politically powerful Texas Automobile Dealers Association, say the rules protect consumers by ensuring that automakers can’t establish monopolies. But critics call the rules 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.

A spokesman for Omaha, Neb.-based Berkshire Hathaway didn’t respond to a request for comment Wednesday, nor did Jeff Rachor, chief executive of Berkshire Hathaway Automotive.

Adam Shaivitz, a spokesman for the Texas Department of Motor Vehicles, said only that “potential resolutions have been discussed” by the agency and by Berkshire Hathaway Automotive and Forest River. He declined to comment further because the cases remain open.

legislative push this year to help Berkshire Hathaway steer around the strict ownership regulations fell apart after the effort was cited by critics as an example of favoritism for a deep-pocketed corporation. A proposed new state law, dubbed the “Buffett bill,” would have allowed vehicle manufacturers to own dealerships “so long as the vehicles they sell or service are not the same type of motor vehicle that they manufacturer or distribute.”

But the bill ended up dying on the vine during the recently ended regular session of the Legislature, despite initially appearing to be on a fast track after Buffett traveled to Austin and met with Gov. Greg Abbott and Lt. Gov. Dan Patrick.