For investors who want to invest in something that has more than just nominal value but perhaps aesthetic value as well, the alternative investment market has something for just about anyone with a taste for the exquisite.
Your investment collection can be sweetened with vintage wines, beautified with masterpiece paintings, adorned with valuable jewellery, and of course – revved up with classic cars.
Some famous cars can fetch millions of dollars, including Beatles musician John Lennon’s “flower power” Rolls Royce, which sold for $2.3 million in 1982, and more recently the James Bond underwater Lotus Esprit from the movie The Spy Who Loved Me, which Tesla Motors’ (NASDAQ: TSLA) Elon Musk purchased for $1 million. Oh, and the fellow who sold the car to Musk bought it in 1989 for $100.
You’re probably not going to make that same 10,000% return over 24 years, or some 416% annually, on classic cars. But according to Historic Automobile Group, publisher of five HAGI indices tracking the going prices of classic autos, you would have made 31.47% year-to-date. That’s better than other popular collectibles such as gold, wine, art, stamps, and coins, and even better than the S&P 500’s 22% growth this year.
Let’s test drive the classic cars market and see if it turns your motor on.
No Speed Limit to Investment Appreciation
Million-dollar cars were all over the place at the recent Concours D'Elegance Pebble Beach auto auction, where the average price was over $965,000. One auctioneer – Gooding & Co – sold 30 cars for over $1 million each, including a 1937 Bugatti Type 57SC Atalante, which went for $8.745 million. The company’s founder, David Gooding, explains to the Daily Ticker that “the beauty, mystique and history of these cars are what make them so valuable and coveted by collectors from around the globe.”
“Automobiles are recognized as an art form,” he elaborates. “People are realizing they are exciting to collect. You can drive them and take them around the world. A car can be a passport to adventure.”
Indeed, though I wouldn’t think the buyer of the 1963 Ferrari 250 GTO racer for $52 million – currently the world’s most expensive car – will be taking it out for spin all that often.
The investment appreciation of Ferraris as a group has pulled far ahead this year, leaving the others in the dust. Where the HAGI MBCI Index (tracking classic Mercedes-Benz autos) has gained 15.47% YTD, and the HAGI P Index (tracking rare Porsches) has gained 19.07%, the HAGI F Index (tracking – you guessed it – rare Ferraris) is up a turbo charged 44.38%.
Dietrich Hatlapa, founder of the Historic Auto Group Index, confirmed to the Daily Ticker that “classic cars have been a very good performer in terms of value appreciation, and the financial crisis helped classic cars and collectible markets.”
Yet Hatlapa cautions investors that perhaps the classic auto market is overheating and may pull over to cool down a little. “Some of the growth rates we’ve seen are not sustainable in the long term,” he warns. “The art and wine markets have already corrected. You really have to know what you’re doing.”
But the range of collectible autos is not limited to million dollar units. At Wildwood, New Jersey last month, more affordable classic Corvettes, Fords, Chevys, Pontiacs, and Plymouths were on display at the annual prize show, which included antique and muscle cars. Perhaps these collectibles won’t crash and burn should the market hit a corrective speed bump.
But Don Williams, a dealer and collector of classic autos, is not worried about a correction. “We’re in an infancy level compared to any other form of investing,” he evaluates to the Daily Ticker. “The hobby has expanded so internationally that we have 10, 20, maybe 30 times as many potential buyers than cars.”
And therein lies the fuel powering the valuations of classic autos. When demand outruns supply, the price can only accelerate.
Banking on Three Special Attributes
Driving that demand are three very unique characteristics of classic autos: rarity, passion, and fun.
An automobile make or model is not manufactured forever, but is produced in limited supply. When a model is discontinued, any surviving specimen gains value simply because it is among the last of its kind. “Where gold keeps getting dug up, and stocks keep getting printed,” Williams compares to the Daily Ticker, “cars are very, very limited.”
But they also have style, flare, elegance, even craftsmanship despite having been mass produced, filling auto enthusiasts with a passion for them. You’d be surprised how much that emotion can drive up the price.
Finally, you can have a lot of fun with a classic car. “You can actually drive your collectible car. You can’t drive your shares,” Christophe Boribon of Shannons Auction House qualifies to the Southland Times. You can even show it off to your friends, and get a kick out of the expressions of passersby. “Another part of what draws people to classic cars as an investment is the enjoyment, the social side of it,” Boribon elaborates.
“Cars have brought a lot of friends into my life,” supports Williams to the Daily Ticker. “It cuts through all language barriers.”
A Parked Investment
Yet Boribon cautions classic auto investors not to get too driven away by the prospect of making a small fortune in a hurry. “The market is strong,” he explains to the Southland Times, “but I wouldn't say that every single classic car has gone up in value. Yes, some cars - rare and collectible cars - double and triple in value, but that doesn't mean that all classic cars have gone up.”
Think too that valuating something that has so much aesthetic value can be tricky. Indices track only certain luxury models, leaving the pricing of the remainder up to the buyers and sellers to work out between themselves. Even if you feel you are purchasing a classic car at a bargain price, finding another buyer who will give you more for it might be harder than you think.
Perhaps one way to own a classic car is make one yourself. That is, keep your current auto in great condition and wait for it to become discontinued. Of course, that could take years.
For that reason, unless you can afford the highly sought-after luxury-end models which can be a great store of wealth for fantastic future returns, most of us might invest at the lower end mostly for the pleasure of it. “Not everybody is equipped financially to just start collecting at the high-end level,” Williams notes to the Daily Ticker. “Buy one that you can personally afford, one that will bring enjoyment to your life, not a financial burden.”
Andrew Shirley of real estate advisor firm Knight Frank acknowledges to Forbes that some investors will purchase collectibles purely for the future returns, while “they have no interest in them whatsoever,” something he does not recommend. “You shouldn’t buy a passion asset just because it may grow in value. It should also bring you pleasure.”
At least then, even if you have to wait 20 years for your auto to fetch a decent return, you would at least have enjoyed the ride.
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