Time for Investors to Get Motoring Again
With classic car values stabilising, get into gear now to accelerate on the road to profitability
By Shahzad Sheikh
From its zenith of about five years ago, the classic car market has been in decline. However there are clear indicators that the bumpy road is starting to level off and a period of stability indicates great news ahead for both petrolheads and investors.
“The classic car market is currently experiencing a period of what we call a ‹natural readjustment’,” commented Tristan Judge, Director of online classic car auctioneering site, The Market. “We’re seeing the after-effects of a past boom in the market which saw prices go through the roof, to a point that they can now only come down.”
In fact since the late 1990s, and certainly through the global recession over a decade ago, vintage and classic car values remained strong enough to lure investors away from the volatile stock market. According to economists Luc Renneboog and Dries Laurs at Tilburg University in the Netherlands, collectible automobiles produced financial returns of around 5.6% a year from 1998 to 2015. Even adjusted for inflation that works out to 3.4%.
Coutts bank calculated a 331.9% growth in returns on classic cars since 2005, while the Frank Knight Luxury Investment Index indicated a rise of 334% over a decade to 2017, putting cars well ahead of other luxury investment assets such as coins (182%), jewellery (138%), stamps (103%), art (78%) and watches (69%).
The Historic Automobile Group International (HAGI) top index (tracking values of high-end classic cars from the likes of Ferrari and Bugatti) went even further, declaring a 500% rise over 10 years. By contrast the S&P 500 was up only 60% during that time. Although this could be skewed by extraordinary sales like a 1962 Ferrari GTO going under the hammer for over $48m last year.
Regardless, classic car values peaked in 2015 but fell 10.4% the following year according to Coutts. They have continued to slide since then, although top dollar cars like that GTO, are less affected. “I would say that the market is re-aligning but remains strong for unrepeatable high quality cars,” confirmed Harry Whale, Sales Manager at Silverstone Auctions. “Five years ago it was an investor market and since then it has been steadily re-aligning and now you could say it is an enthusiasts market.”
Judge agrees: “The difference between now and five or ten years ago is that the market is now enthusiast-only lead, with an absence of investors. As a result, many traditional auction houses are now struggling to achieve sales rates above 50-60%.”
This is further impacted by the associated costs of owning classic cars. As well as transaction and commission costs, investors need to factor in transportation, storage, insurance, ongoing maintenance and occasionally restoration. On the other hand average earnings on the stock market above inflation are 4-6% and there are no associated costs. Cars are not a regulated investment, there’s no protection as there would be with an investment fund, meanwhile trends and tastes could change putting the value of your collection at risk. Nonetheless they remain popular with individuals looking to invest in the collectible assets market.
Judge cautions that “it’s not the best time to invest, but instead the best time to buy classic cars as good value for money and enjoy them in way they were intended, by driving them!”
He does concede however that: “there are certainly cars out there which make secure investments. If you’re looking to invest, seek out the very best examples; those which are in exceptional original condition, have covered very low mileage, have had few owners, and have been meticulously maintained with all paperwork and provenance.”
The market is also susceptible to a generational impact. A decade ago American muscle cars were enjoying stratospheric prices as retiree baby boomers cashed in their savings and relived their youth. That’s changing.
“Cars of the 1980s and 90s are in strong demand, possibly as the generation coming in to buy are harking back to those days,” explained Whale implying that values will strengthen for cars with the strongest emotional and sentimental pull for investors. Judge concurs that this is reflected in the mid-level market, with prices between $30,000-$60,000, performing the strongest at present.
The best advice is to buy the least molested, most coveted examples of desirable 80s and 90s cars, enjoy them for a bit, then mothball them for the long term.