Warren Buffett appeared live on CNBC's Squawk Box this morning, March 2, 2011.
This is Part Five of a transcript of his comments.
Click here for Part Four: Blame Bankers, Bankers, Bankers?
CARL: Speaking of cars, someone who knows an awful lot about that business from multiple directions, Becky, is the man who's with you this morning, Warren, in Omaha.
BECKY: That's right. In fact, he was glad to hear Mike Jackson just talking. He said this is important and he'd like to talk about it. What are you thinking?
BUFFETT: Well, it— what Mike talked about is— gets back to that regenerative capacity of capitalism. We were sorting out 16 million cars a year not so many years ago. When it fell to nine and fraction million, when people were panicked, it was going to come back from that. We were— the scrappage rate was higher. Americans haven't lost their love affair with cars. More Americans were going to be in the country every year. So now it's back to, is— I think he said 12.4 or something like that in February.
BECKY: Mm-hmm.
BUFFETT: And it's going to come back beyond that. I mean, it— well beyond that. And that really isn't a function of saying cash for clunkers or isn't a function of monetary policy or fiscal policy, it's a— it's a function of the fact that Mike is out there trying to figure out ways to sell more cars, people want to buy more cars, money is cheap, the economy is coming back, and it feeds on itself over time. And you will see 12.4 look like a very low number in a— in a few years.
BECKY: Mm-hmm.
BUFFETT: And that is happening throughout America. It happens in different places at different times. It hasn't happened in homes yet because there was a bigger surplus to clean out. But in the case of cars, you can postpone it a day or a week or a month buying it, but scrappage rates count over time.
BECKY: Sure.
BUFFETT: And there is a normal number of cars on the road for a given population in a place like the United States, and we fell below that for a while and now we're coming back, and we're going to keep coming back.
BECKY: Somebody just wrote in, wanted to know if you'd be interested in buying Auto Nation.
BUFFETT: Well, it's a good business.
BECKY: Yeah.
BUFFETT: It's a good business.
BECKY: All right. Warren's going be with us again for the rest of the program. We've got a lot more to talk about and a lot more of your questions to get to. Our conversation is just getting started this morning. More on the economy, politics and the best investment bets right now. Again, much more from Warren Buffett, Squawk Box will be right back.
***
CARL: Welcome back to Squawk here on CNBC. I'm Carl Quintanilla along with Joe Kernen; Becky Quick this morning is at the Durham Museum in Omaha, Nebraska, with the Oracle of Omaha, Warren Buffett, who's with us for the entire show. We've already gotten one hour down, Joseph. You look like you've learned a lot already.
JOE: Yes. I've learned a lot and I've got— and I'm...
CARL: Your elephant gun is loaded with questions still.
JOE: Yeah. Yeah, it...
CARL: And your— and your...
JOE: Or do I just like you? I— and I'm craving more— I have more questions...
CARL: Yeah.
JOE: ...and I'm craving more answers.
CARL: We've gotten a lot so far.
JOE: Right.
CARL: We'll get to Becky and Warren in just a minute.
***
CARL: Want to get back to Omaha, where Becky is this morning, fielding questions not just from herself and Joe and me, but from viewers. How many— how many questions do you think, Becky, we've gotten total?
BECKY: Oh, thousands of them at this point, and I know they're still coming in fast and furious this morning. We're trying to go through those ones this morning as they're coming in. But we got some really thoughtful questions. This is the fourth year in a row that we've sat down with the Oracle of Omaha and talked to him about that annual letter just after it's come out. This time, though, we did it a little differently. We're here on a Wednesday instead of a Monday. And, Warren, that actually gave the shareholders and the viewers a lot more time to go through this letter and come up with some pretty thoughtful questions. So we want to work in as many of these as we can today.
BUFFETT: We may have to go back to the old system, I think. They're tougher.
BECKY: These are tougher questions. One thing I do want to bring up, though, from the annual letter. You wrote about how capital spending at Berkshire is going to be up above $7 billion this year.
BUFFETT: Yeah, eight billion. Yeah.
BECKY: And that's— and more than a billion dollars above where it was last year.
BUFFETT: Yeah.
BECKY: So the— that's some pretty significant spending. You also said that all that spending is going to be taking place right here in America.
BUFFETT: Yeah. We spent about six billion last year, 90 percent of which was in America, 5.4 billion.
BECKY: Mm-hmm.
BUFFETT: This year it'll be up two billion, roughly, to eight billion, and all of that increase will be in this country. We— there are plenty of things to do in the United States that make— that make good economic sense. And, you know, we've got the money to do it and it— particularly true in our capital-intensive businesses like the railroad and I— like our utility businesses. But we're spending money in the residential home construction business not because we see the orders today, but it takes time to build a plant for Johns Manville and, like, we want a brick plant in Alabama. That brick plant's going to lose money this month, it's going to lose money next month, it'll lose money the month after. But we are buying the ninth largest brick producer, and we know that one year, two years, five years from now people are going to be using a lot of brick in houses. And we could buy it at an advantageous price, so we're...
BECKY: You think that that's a general sense in business right now? Because Jack Welch was with us yesterday, and he pointed out that in the businesses he knows— at Hertz, for example, if you look at the S&P 100 companies, the spending with Hertz that they're doing is up 15 percent from a year ago. If you look at the S&P 1000, it's only up by 6 percent. And if you look at the S&P 2000, it's only up by 2 percent. Do you get that same sense of this graduated confidence about the economy, depending on how big the business is?
BUFFETT: Well, I think it's more what you're seeing in your own industry. Men...
BECKY: Mm-hmm.
BUFFETT: But we aren't seeing it in residential homes. And I mean— or I'm not buying a brick plant because I see a demand for brick next month.
BECKY: Mm-hmm.
BUFFETT: But this country used 10 billion brick a year five years ago when we were building a couple million homes, we're using about three billion brick a year. But it isn't because people have lost their interest in brick or its utility or anything has changed, it's just residential construction's down a lot. But that's not going to happen forever. And a brick plant is going to be more costly to construct five years from now than now. So if we're getting something that's state of the art, you know, now's the time to buy it if you've got the money. And we've got the money.
CNBC BUFFETT TRANSCRIPT PART 6: AMERICA'S DIMINISHING DOMINANCE
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