The new company will be renamed Berkshire Hathaway Automotive, but will still be run by Larry Van Tuyl, who will become chairman. Van Tuyl's Jeff Rachor will assume the role of CEO.
There's a huge opportunity for consolidation in auto dealerships, Van Tuyl told CNBC, while sitting next to Buffett.
The Van Tuyl family founded the group six decades ago, and it's now No. 5 overall in U.S. auto dealerships with about $9 billion in revenue and 78 independently operated locations in 10 states.
The operation has the ability to be scaled up, Buffett said.
The transaction is subject to getting approvals from the major auto manufacturers and regulators. It's expected to be completed in the first quarter of next year.
The new Berkshire Hathaway Automotive would compete with big players like AutoNation whose CEO Mike Jackson emailed CNBC to say congratulations to Buffett on the deal.
Jackson, who appeared on "Squawk Box" Thursday before the Van Tuyl announcement, wrote after hearing about the deal: "Welcome to the retail auto business."
"As you know, Bill Gates [Buffett's friend] is a 15 percent shareholder in AutoNation," Jackson continued, "and I'm sure the two discussed the business."
Jackson refused to say whether he'd welcome a deal with Buffett should the billionaire investor came knocking.
Reacting to Jackson's comments, Buffett said that he thinks Jackson is a smart businessman and has built a great company. "I watch him every time he's on ... and Bill [Gates] has made a lot of money on it."
"I don't think we'll be buying [AutoNation]. I know he won't buy us out. We'll probably be both buying more dealerships," Buffett said.