By Rick Carey, Auction Editor
The collector car market cratered in 1989-90.
What were the significant events that preceded the collapse?
1. Auction companies popped up everywhere trying to get a piece of a rapidly growing number of transactions, increasing prices and resulting commissions;
2. Cars sold to speculators, not collectors;
3. Individuals like Hans Thulin took on huge bets on the collector car market’s continued rise; Thulin eventually failed to consummate his purchase of GTO 3607 at Monaco in 1990 for $10.7 million and a year later it was sold for a reported $6.9 million to cover the gap;
4. Prices inflated by significant percentages in periods measured in weeks, not years;
5. The same, identical, cars turned over again and again, sometimes in months;
6. Promoters (auction companies, dealers, brokers, speculators, ‘investors’) argued, “Buy now, it will cost more next month”;
7. Cars crawled out of the woodwork and were sold quickly, with little serious research, to new money buyers who relied upon superficial descriptions and prior transactions to support their valuations;
8. New money was everywhere;
9. The popular press touted “investment values”;
10. High end Italian cars were taking off in price, leaving pre-war Classics in their dust.
Take those ten points and apply them to 2014. Most, if not all, of them are being repeated.
If that isn’t the prescription for a bubble, a boom, and an impending bust it’s hard to describe what it would be.
We’ve seen new auction companies debuting every quarter. Currently, another new auction company is seeking backing, including from an asset-liquidation specialist company [floorplanning collector cars for re-sale? That’s about as insane as it gets.]
Finance/leasing companies are approaching collectors with mega-dollar cars offering loans at bargain basement rates.
Opportunists are everywhere. Uninformed new money is flooding the market. They don’t know what they’re buying (seven-figure GTCs, half-million dollar Dinos?) and are only following fashion – like sheep behind the Judas Goat headed for the slaughter house.
This summer’s reading list could include tomes like Boombustology, Kindleberger and Aliber’s updated Manias, Panics and Crashes, Chancellor’s Devil Take the Hindmost and of course good, old Tulipomania. They’re all recounting the same story of unsustainable, leverage-fueled excess.
The RKMotors auction in Charlotte last Fall was an example of hedge fund money deployed in pursuit of hot profits. When the sale fell on its face the whole auction organization was dismantled nearly instantaneously. Money guys have no patience. Their presence in the world of collector cars is anathema to long term value. If the market turns they will crowd the turnstiles getting out, taking any money available in the rush for the exit.
The Monterey auctions, with their new formats and many recycled cars, could be a watershed moment.
The best thing that could happen in Monterey is that the no-reserve Ferrari 250 GTO sells for $35 million, re-setting expectations to more reasonable levels. It’s the one thing that might scrape the froth off the frenzy and return expectations to less exuberant levels. Don’t expect it to happen, though. If it sells big the hot money buyers will see it as the vindication of their exuberance and head into the salons of Bonhams, RM, Gooding, Mecum, Rick Cole and Russo and Steele with their paddles held into the air in sky’s the limit bidding.
A Gullwing, GTB/4 or XKE isn’t a pool of mortgages on dwellings where people live and pay every month to keep a roof over their families’ heads. It isn’t a corporate debenture backed by earnings generated by utility to consumers (assuming they have money to acquire that utility.) It’s a dormant, inanimate thing that costs money to own and maintain. It achieves value only through its owner’s enthusiasm and participation in events, even events as mundane as a Saturday afternoon drive. There is no inherent value in a Dino, particularly a half-million dollar Dino.
The Classic market is, thankfully, the exception. The collectors of classic Packards, Bentleys, Stutzes, Lincolns and Cadillacs migrate from the cars they knew as kids into new experiences and friendships among Classic owners and events. They have gained perspective. They don’t follow fads and fashion, they’ve been inoculated for that through hard experience.
But the divergence between Classic values and more recent cars is a key indicator of frenzy, a transition from collecting to speculating.
Monterey is a celebration of automobiles, but the celebration has been overwhelmed by speculation. It isn’t the Pebble Beach Concours or The Quail or the Concours on the Avenue that gets headlines. It’s the auctions and the eye-popping prices the cars bring that are in the bold print.
Car collecting has lost track of its reason for being, the cars, and been supplanted by speculation.
It can’t continue, and Monterey may be the beginning of The End.
—
Notes on comparison photos: Historic sale prices include buyers’ commissions; current auction estimates do not. Rates of return are approximate. The cars shown are only a sample for which earlier auction photos can be found, but the disparity in historic and contemporary value [estimates] show the divergence in value expectations for high visibility, fashionable, cars from those expectations for cars not featured in the limelight.
[Source: Rick Carey; photos: Tim Scott / Fluid Images; RM Auctions; Rick Carey]
I unfortunately see no end to Ferrari prices rising, however I do see some will be put on a high enough price shelf that a profitable, or even duplicated selling price couldn’t be had again, which I reckon will be in the $100,000,000 range. This will cause second tier cars being the new GTO’s and Pontoon Testarossa’s, such as 312PB’s, 250LM’s, and even Daytona 365 GTB/4’s, which we have already began to see their prices skyrocket.
Very thoughtful writing in which I have to completely agree with author. Classic cars regardless of an era has to be owned to be enjoyed in which can not be achieved if they are just kept into storage in order to gain value.
Rick – thank you for the insight. Have you seen what is going on in the art world? This is nothing compared to that. Easy money policy and low interest rates have birthed a rush into collectibles who’s asset prices will continue to rise until rates rise and yield can be had in fixed income. A correlating correction in equity values will also follow the rate rise in the 10 year treasury as evidenced by the recent stock market correction last week where only in the strange world we live in is good news (4% 2nd quarter GDP) immediately met with a 5% stock downturn. Why? Hedge Funds and speculators fear the FED will stop asset purchases prematurely thus driving up rates and ending the free money market we live in. You are correct, the party will soon be over for cars, art and the stock market. Which preceeds which is anyone’s guess. Bulls make money, bears make money, Pigs get slaughtered. Take your profits now and buy that Ferrari at a discount in 5 years.
Terrific articles. All 14 of my vintage ferraris I raced 1974-1997 in SVRA, HSR, VSCCA & SCCA have sold for $3mm + my cost less than $50,000 prior to dumping them to pay off my X wife Lin Berlitz Hilton and her 5th. husband. [married one year until she had the kid, Jim Kimberly introduced us, still love Jim ! ]_T.I.D.E. ferrari racing, palm beach. 81 lE mANS 5TH. o.a. IMSA class winner. TIDE pozzi ferrari France. 512 BBLM #31589. OWNED / raced, Sept 1980- July 1989.
Will we ever learn? Greed is driving the art, collectibles, stock and housing markets and another crash (recession) may be inevitable. Mr. Carey’s report is something we should all take to heart since a lot of people are going to get burned when the “End” comes.
Matt,
You’re right, the art market is even more crazy that collector cars.
However, as Kelly Crow observed at some length in a recent Wall Street Journal article, much of the upward pressure and liquidity in the art market is coming from newly wealthy Chinese, Indian, etc. collectors who have had little effect on the art market until recently.
Cars don’t have the same connection. The BRICS wealth has no sense of the history of the automobile. The infrastructure to enjoy them, let along maintain them, is totally missing. A 275 GTB/4 arouses no admiration and awe among potential BRICS buyers’ contemporaries.
To that extent, I believe, the art/collector car connection is tenuous if not completely missing.
Thank you for a very insightful and well-wrought article. It all boils down to rarity combined with the number of potential buyers. I do not see inflation because easy money is available, contrary to 30 years ago. The buyers have real money this time. I do agree with the analysis that uneducated people sometimes step in following the other lemmings, resulting in silly prices that will prove unsustainable, because of the lack of intrinsic value of the cars themselves. I do not think this (yet) applies to Dinos, but it already does to sl300 and 190, DS cabriolet, some 275s, as was recently shown. I take great pleasure in finding the future ‘hot’ cars and keep those for many years, and driving them actually. Even in today’s market, one can still find them, although I was too late for Alfa 2600Z, Dino 246, maserati A6G, 250 Lusso. In the case of those cars, it will indeed be ‘wait and see’, and maybe be proven wrong. I am Very Curious for instance what the Frua 5000GT will do with this amazing price indication. And what will happen when the next DB4GTZ comes along. And gto’s will be gto’s, fantastic entertainment for us simple folks.
Rick, my point wasnt to draw correlation between art and car values but to draw correlation between asset prices and monetary policy. A correction in one will bring a correction in the other as long as interest rates raise.
In 1987 the yield on 10 year Treasury Bonds had hit a 15 year low, hence the rush into collectibles like Ferraris. As yields started to rise, and the S&L crisis hit, Ferrari values tanked. I think history will repeat itself, how fast and hard will depend on how quickly rates rise because the appetite for return will switch focus.
Matt,
I agree that loose money and low rates of return have driven some of the interest in collector cars although I don’t see it — except for some opportunistic risk-takers — being higher return driven. Instead, I think it is, “Decent returns can’t be earned on financial investments, so maybe I’ll park some excess liquidity in something interesting like collector cars.” There are many stories of buyers approaching collector cars, “because my financial advisor told me to look for somewhere else to put my money.”
Even more worrisome is the advent of leverage which reinforces the appeal of cars to the uninformed. 50% down and a check from a finance or leasing company for the balance makes speculation — and paying higher prices — much easier.
New collectors who see the art market priced [far] out of reach may also turn to cars (or coins, or furniture, or any one or more of a number of collecting categories) as an accessible alternative. Reinforced by low-priced leverage it becomes even more divorced from reality.
You didn’t mention quarter-million dollar XKEs, or six-figure FJ40 Land Cruisers.
Rick
As a side note, how anyone would spend $200,000 on a 190SL is beyond me when for that same money you could own a pristine ’67 427/435 Corvette Convertible and get 10x the driving enjoyment. Ditto the Dino….195 HP, no leg/head room? No thanks.
I have owned a 246GT since 1988 and for more than a decade it was my daily car.
1: I am 6’2″ and have plenty of headroom. It is possible for me to drive with a crash helmet on track days – as I have done countless times. My Dino has been driven in anger on Fiorano and might have been the very first road going Dino to have done so (another story) – fabulous fun to say the least.
2: The trunk easily accommodates two sets of golf clubs plus assorted bags. Longer trips are clearly not an issue.
Despite the meager “195” bhp, the car only weighs just over 1000kg, so performance while not astonishing by modern standards is extremely capable. Top speed is beyond most people’s nerve or road availability, as my example easily pulls 8500 in 5th (way past red line), at which point the length of road and metallurgy become issues not to be challenged.
Since I didn’t pay $500,000 for mine, I have no idea what it means to own a $500,000 Dino. I certainly do not value mine at that. If the market does, then that is the market. It is not relevant to those of us like me, who simply enjoy the pleasure of a road trip in what IMHO is the 70’s most stunning car.
What I do suspect, however, is that you have never sat in a Dino, much less driven or owned one.
Show me picture with two sets of golf clubs plus assorted bags please
I completely agree! I think we are saying the same thing and it isn’t sustainable. Buyer beware. It is a good time to take money off the table and wait for a better time to make your purchase.
I have been involved with cars all my life. And I started collecting them when I was in my teens–and that was a long, long time ago. I remember buying a run-down Continental convertible for $100. A 1941 Cadillac. Then a 1956 Packard Caribbean convertible. Then I bought a 1958 Cadillac Eldorado Brougham and then 1959 Eldorado Biarritz. A FIAT Dino, Then Ferrari Daytona, then Ferrari Dino and numerous others over the years. I also bought new cars like a Pontiac GTO convertible and a Dodge Challenger convertible. And usually each time, people (many of them friends) laughed at me–especially with the vintage cars. They just couldn’t understand. They were not car people usually. Just those who could only think in terms of dollars and cents.
Decades later, many of those same people would come up to me and say things like, “You remember that Continental convertible you had? Ya still got that? HOW did you know it would be a classic? You know what that cars is worth today???” They just didn’t get it.
Over the years, most of the cars I once had got too expensive to own as a group and thus most went away. Some were stolen. But I still love them all.
A few years back I was visiting a “museum” (really a used classic car sales room) in Las Vegas. I was engrossed in looking at and photographing a one-off car on display there. I had not seen this car since the 1960s and was fascinated to see it once again alive and well. When I asked one of the guys sitting behind the desk about it, he seemed uninterested and advised me it would not bring big money at an auction (so what I thought?).
After that the guy spun his laptop around with matrixes of dollars and cents and auction figures and proudly proclaimed to me that he could tell me the auction results for every car in the “museum”” and others for the past 15 years! Wow. I guess I was supposed to be impressed. He didn’t know much about the car I was looking at, but he could quote dollars and cents and sales results for 15 years worth of “classic car auctions” and he knew the names of every auctioneer–like THIS was important!
No longer are car people quoted as “sources” in historical discussions of these cars. No. THAT credit is now attributed to auction companies–some of which make up their own biased or fictional histories to grease the skids on their sales as they pretend to be real authorities of this “history.”
What used to be a hobby of passion and love and even obsession has now come down to this. Dollars and cents, auction companies, wild newspaper headlines, speculators, computer matrixes and “investors” pretending to be collectors. To many of these folks, the cars are merely stocks and bonds… or commodities. They could just as well be municipal bonds, pork bellies, bowls of rice or dog feces. Meanwhile those of us who really loved the cars and often kept them out of the scrap yards for decades are excluded for the very thing we so dearly loved.
This has to be the BEST article I have read on the subject and I thank you for it.
“But the divergence between Classic values and more recent cars is a key indicator of frenzy, a transition from collecting to speculating.”
There are two prime alternate explanations for this dynamic – changing tastes and changing demographics of the collector car market. Is it really that surprising that people entering the market for the first time don’t know what to make of a Full Classic? That Baby Boomers have a greater connection to a Ferrari or Porsche from the ’60s than a Packard from the ’30s?
Will there be a correction? Surely yes, at some point. But this divergence in prices between the values of Full Classics and more recent cars seems like weak evidence for an imbalance in the market.
Well, Boomer, I can only tell you that this is exactly what happened in 1988-89. The Classic collectors, as a group, stayed out of the fray as the transactions (I hesitate to characterize them as ‘values’) for vowel-ending cars catapulted into low earth orbit.
And it is a characteristic identified as significant by economists who study booms and busts.
I do agree, however, that younger bazillionaires will opt for Diablos, F50s and EB 110s as their first plunge into collector cars. Transactions endorse that position.
That does not, however, extend to 275 GTB/4s, Daytonas, 190SLs and XKEs. The collectors for whom those were the cars they lusted after in their callow youth are now established. Baby Boomers (born 1946-64) have little concept of what these cars were. They were just old cars by the time most of them reached the age of impression, which I’d put at age 10 (for the truly obsessed) to age 18.
If the 50’s and 60’s vowel-cars are taking off — and they are — it’s because some other impetus is working on them.
‘Fashion’, perhaps?
Rick
Leon, don’t leave us in suspense. What was the car?
Hehehehehee. The car was the Thunderbird Italien… which I remembered very well from seeing it in Detroit when it was new. But the guy at the museum told me “…That won’t bring the really big bucks at an auction. If ya want the really big money, you’ve gotta get a REAL Italian car!”
Oh, I see. Geeez. An education, huh? Of course, I’ve owned numerous Italian cars over the years. But so what? I was irritated just listening to the spiel about how this beautiful one-off was somehow insignificant and I oughta wake up to the fact that Italian cars could rake in the cash for me if I “wanted to invest!” Like this was some stock broker company and they were going to steer me toward the best stock to buy. THIS is what has happened to what was once a wonderful hobby. It is literally strangling in many ways on its own success. And those doing this are blind to what is being caused to happen here.
Vintage cars have been commandeered by auction companies and investor types…and the only status now is becoming how much you’ll be raking in at the next auction. And there’s ALWAYS a next auction. There used to be a few of them each year. Now there’s one every other week. And believe me, the people who are watching your money only know that–to them–”collector” and “investor” have come to mean the same thing. The powers that be are just sitting around now trying to figure out an angle where THEY get in on all this money changing hands too. Nothing like this continues unabated forever. They don’t see the poor devil struggling to fix an old Packard in his garage over several years. But THEY DO see the headlines of “Ferrrari sells for 25 Million Dollars!” NOTHING is too big to fail. Just one more aspect of all this that will sooner or later cause the bubble to burst with a very loud crashing noise and a very bad smell.
Rick, the past doesn’t always repeat itself and your article reeks of sensationalist fear-mongering. If you hadn’t noticed, this isn’t the 1980s. There are 2.2 billion more people in the world than there were in 1985. We exist in a global economy. These cars are worth the same in China or the UAE or Europe or Brazil as they are in North America. There are more new billionaires created each month than there were in 1985 total. The middle-class is eroding at an alarming rate. They aren’t the ones buying these cars anymore. Look at the art world. It is sad for the real petrol/gearheads out there who want to own and race vintage cars. They are unobtainium for all but the wealthiest percentile of our global society. We shall see in two weeks what the market decides and I bet you are dead wrong. We’ve never seen anything like this before.
Robert, I hope you haven’t converted the Canadian equivalent of a 401(k) to a portfolio of collector cars based on the global assumption that new millionaires in China, India and Brazil will snap them up at inflated values like Vancouver, BC real estate.
A Global Economy most emphatically does not mean global shared experiences. New billionaires in BRICS countries don’t have the shared automobile experience, let alone in countries loosely categorized as “Third World”. In many cases (China, India) they don’t have roads to drive them on.
Your comment smacks of the deadly, “This time it’s different.” It isn’t, for all the reasons cited in the original article. It’s more of the same.
Most of the 2.2 billion more people want, in loosely descending order, potable water, cooking fuel, nutritious food, reliable electricity, smart phones and Internet connections. XKEs and 190SLs are so far down the charts they’re insignificant.
Is the middle class eroding? Then you haven’t been to an Auctions America, Leake or Mecum auction lately where the median cars are in the $20-30,000s. Billionaires aren’t buying them. The buyers are plumbers, doctors, machinists, lawyers and retailers.
You’re right that “the past doesn’t always repeat itself” but more often when all the indicia are aligned it is about to.
“We’ve never seen anything like this before”? You were born after the last collapse of the collector car market so in that sense you’re spot-on, but you should employ the singular first person, “I’ve”, to qualify your lack of experience.
I’ve seen it before, and so have many of my colleagues. You are a naif, still wet behind the ears.
I encourage you to come to Monterey in two weeks, pockets bulging with your “investor’s” cash and buying everything at whatever price it will be unloaded by more experienced collectors who know that pigs get fed and hogs get slaughtered as they convert their cars to cash at or close to the top of the bubble.
Good luck, Robert.
You’re the problem, not the solution.
Rick
Dear Rick,
I shouldn’t be surprised that you lowered yourself to strike out at who you perceive I am simply to further your argument. It is very blasé, and your ageist remarks aren’t attractive and should be beneath someone as wise and experienced as yourself. Your pessimistic attitude of “I’ve seen it all before” is just as dangerous as my optimistic and “naïf” attitude that “this time is different.” It is different; your argument hinges on the statement: “Take those ten points and apply them to 2014. Most, if not all, of them are being repeated.” They are not all present, and as other commenters have remarked, this is not 1989, and if you hadn’t noticed, the future is wildly unpredictable. I don’t know the future and I’m quite confident that you don’t either.
Hindsight is a hell of a thing. In 1989 we had no Internet, no global awareness of prices. The bubble then was created by the frenzy of rich Japanese collectors snapping up cars at premiums of over 50% of the going rate in the USA. The only way to check prices was to read print publications like Hemmings, where shrewd American dealers advertised their cars at grossly inflated prices. When things got bad and these Japanese buyers went to liquidate their cars, they were faced with a double blow of economic recession and a massive price adjustment (to real prices). I know several people, who both won and lost in that scenario, but the winners no longer have their cars and they are worth a lot more today. Now everyone knows, because of the Internet, what prices are on collector cars. There is no fooling anyone anymore. You need look only four years ago to late-2008 where a major economic collapse created a blip on the collector car market, but not a bubble bursting.
You are wrong: I was born prior to the last major crash. However, at seven years old, I certainly wasn’t paying attention to the car market collapse. My experience is much more recent. I spent my twenties buying and selling collector cars with a restorer and his main collector and the rest of my time pursuing a broad education at university. My passion for automobiles runs deep. My grandfather collected and restored classic and vintage automobiles, and my family lived on the Goodwood estate during the 50s and 60s when the track was still in good use. While I was not a part of that, I have grown up with that connection and history at heart. It makes it fun to meet legends, such as Stirling Moss, and to hear him recount the days when he and my father raced slot cars at Goodwood House in the 50s.
One of those collectors recently bought a very pricey XKE in New York at the RM/Sotheby’s sale and a certain Daytona at RM Auctions in Monterey last year. He is openly willing to pay world-record prices in his pursuit to have the very best cars for his personal collection, and he isn’t alone in doing so. I am told he will never sell a single one of those cars. You may get to see them in a museum one day, but it is unlikely that we will ever see them come back to market in our lifetimes.
It is very much like amassing a collection of great art. It is an expression of personality and interest and passion and, of course, of wealth. So crucify him for having good taste and being successful. Do you think his passion is less because he can afford these cars? There aren’t very many rare collector cars and there are a lot of guys with the means to acquire them.
The baby-boomer generation, to which I assume you belong, is the end of the so-called “middle-class.” You’ve paid off your mortgages and have pensions and 401Ks with hopefully enough money to see you through your golden years. I don’t think my generation will fare as well. Yes, a lot of your retired peers are buying 20,000 – 30,000 cars at the other auctions. We were at the Auctions America Burbank sale on the weekend and saw that the median market is very healthy, but we aren’t writing about Cadillacs and Mustangs in this article or in these comments. We are talking about GTCs and GTOs and Dinos and XKEs and 190SLs and 300SLs… It is a completely different league. You can buy a “real” Dali lithograph on a cruise, or you can buy a real Dali painting. There is a huge difference in price and in the buyer. I’m not saying one is better than the other, as we all have difference tastes in art and in cars. I am saying you can’t mix your apples and oranges to argue your position.
To address your remarks on the developing world: BRICS and the concept of a “Third World” are out-dated in recent literature and are very Western/Euro-centric perceptions of the world. There are great roads in China and India and Brazil and Russia. Yes, the largest growing percentage of the population is poor, but we aren’t talking about people without the means to acquire these kinds of cars. Don’t be so narrow-minded as to think that there aren’t people as educated and wealthy in China or India or South Africa as there are in America.
What “problem” am I creating with my optimism and opinion? My favourite cars are, believe it or not, from the 20s and the 50s. I don’t think I’m the only thirty-something-year-old who feels that way either. I will be at Monterey again this year with my collector friends and their bulging wallets, and we will break records for you to write about in two weeks. I suspect we will see a feeding frenzy for the very best cars and the rest will do as they always do: some sell well, and some don’t at all. There is always a chance something bad will happen, but I try not to dwell on it, as life is so much more enjoyable when you think positively. The only “collectors” cashing out are the ones who don’t have the vast wealth to sustain their passion. A real collector wouldn’t sell his dream car for a million bucks. What are you going to do with a million bucks anyway? You can’t drive it or admire it or even really look at it. I’d rather have a Gullwing than the money.
I read your LinkedIn profile and perused your, albeit charmingly antiquated, website much as you did when researching me. You appear to be a chronicler, an observer on the sidelines, simply watching the prices rise and fall. I, however, participate in the market and I have helped legitimate collectors, not speculators, acquire tens of millions of dollars worth of classic cars in the past decade. I don’t mean to slight what you do as a historian. Historians have the responsibility to record events great and small, but they aren’t oracles. Please stop fear mongering and think twice about publishing your sensationalist and pessimistic opinion to get a lot of reads. I don’t pretend to know the future, and you are old enough to know that you can’t predict precisely what is coming.
Respectfully,
Robert
Well said Robert. It is early December and the bubble hasn’t burst yet. The times are different: the world is smaller, the rich are younger, the wealth is greater and more sudden, and the long-range hope is lesser. Would you agree that your gen and the gen that will follow yours is more fatalistic about their future and have more of a “live now, for tomorrow we die” life philosophy?
I am late into this discussion and doubt I will get a reply, but I am here after surfing the net looking for answers because to my current dilemma: the centerpiece of my modest collection, a Ferrari F50, is being aggressively persued by a young guy like yourself and I’m not sure what it’s worth or if I even want to sell it. I do know that on the one hand it is a lot of money sitting there not doing much more than looking pretty. On the other hand (and I’m embarrassed to admit this), but a certain amount of unexpected pride and bragging rights are attached to that dumb car, and I like it occasionally. In fact, I like it a lot occasionally). So, you might ask, “what would drive him sell his dream car and take the money and run?” All this talk about the bubble bursting, that’s what. Yes, my middle class baby boomer mentality says strike while the iron is hot, whether I need to or not! LOL! Oh well, I’m not complaining. It’s not a bad problem to have. I thank God for His blessings, especially the fast, red ones! In the meantime Ladies and Gentlemen, I say, “Don’t worry about tomorrow. Tomorrow has enough worrys of its own”.
Chris,
You’ve hit the nail on the head with your comment about timing.
“How much is ‘enough'” is another way of putting it. Some of the cars coming to the auctions are, I believe, doing so exactly because their owners — who probably have more more than one car showing large unrealized gains sitting in the garage — decide, reasonably enough, to convert paper gains into realized ones on one or more currently popular, and therefore highly liquid, cars. Locking in a healthy gain while retaining appreciation potential on others is a rational “investing” strategy.
The dilemma comes in deciding which gain to realize, which others have realistic potential for further gains, and which vehicles have more personal value in possession than in profit.
As you point out, it’s a good problem to have.
There once was a popular phrase, memorialized on innumerable tee shirts, that is the direct opposite of your “live now, for tomorrow we die” observation. The idea that “He who dies with the most toys, wins” seems to have faded, a sign of the fast-moving times.
Rick
Here is the only reason to buy a special interest car. Is it art?
Was it crafted by a specialist or fabricator? Are the engine and drive train out of the norm? Is it beautiful? see Lusso and P4.
Last and most important. Would you mount it on your living room wall?
Nothing else matters……………………………
Those of you who think an early ’70s Chrysler product is special need to check your back issues of Motor Trend.
Great article. Once you adjust for inflation I’m not sure this bubble has hit all the value peaks of the 89 bubble. My Dad had what is now my 365GTB/4 insured for £400,000 back then, that’s over £1m in today’s money.
Also the 89 bubble also saw huge appreciation on new or nearly new cars. Ferrari 328s were trading for £90K (over £200k in today’s money) and Testarossas were well over £200k when they listed at around £120k.
Nice article Rick. However I fear what you expect will not materialise. I personally know of a number of very high end individuals who have purchased multi million dollar cars for their collection, and have put this question to them, what happens if the market collapses? They have all answered the same to me .They say it will make no difference at all. They will simply not sell their cars and continue to keep them as they have so much money, and are simply not leveraged. In fact, they said if that happens, they will continue to buy more cars at these presumed lower prices. So my point is, that this so called high end market is highly unlikely to collapse as there is still a great deal of support and money around.
I personally would welcome a crash so that I will be able to afford some cars which I have missed the boat on, however I doubt this is going to happen anytime soon…..
Alex, your observations on well-heeled collectors’ motivations are valuable and appreciated. But even well-heeled collectors won’t support the observation of the first comment in this string, “I unfortunately see no end to Ferrari prices rising”. At some point, and it is my belief that the point is sooner rather than later, transactions take leave of values and even those well-heeled collectors — the ones with all the right motivations for collecting — will rebel at the amounts changing hands and stop buying.
It is not simply a matter of lots of liquidity sloshing around at tepid rates of return. Neither is it, as some have opined, a retreat to hard assets as a hedge against inflation or financial apocalypse. Collector cars, as you well know, are not without significant carrying costs if their values are to be maintained. Their carrying cost is offset to some degree by the enjoyment of using them, but, really, how many cars can any single collector use consistently? Probably no more than two dozen.
When the well-heeled collector cadre stops buying at ludicrously inflated prices it removes support from the expectations of speculators like Robert (above). It is those speculators who will have to rush to the exits in order to maximize profits, then minimize losses and finally to meet creditors’ demands for repayment.
It is the confluence of precursors to bust that the collector car market is showing in August 2014 that the article points out. Reach your own conclusion.
Also feel free to reach your own conclusion about the rationality of $1.5 million 300SL Roadsters or $600K for a Pf Coupe. At values like the latter soon restorers will be turning TR Replicas based on Pf Coupe chassis back into Pf Coupes.
There are 84 Ferraris at just Bonhams, RM and Gooding during Monterey. Their total estimates are a low of $134,240,000 to a high of $170,100,000. Throw in another hundred million for the ones without estimates (like the GTO and the Tre Posti) and you’re looking at a quarter of a billion dollars in Ferraris alone. In 2012 the entire Monterey auction take from all the auctions combined was $263,346,400.
The sum of all the low estimates for the 368 cars at Bonhams, RM and Gooding is $310,598,000. Throw in the aforesaid $100 million for Estimate on Request cars = $410 million. That’s real money even in Federal budget terms.
It will be interesting, to say the least.
See you there.
Rick
Your Item # 2 is what will impact the current market and as of this date the significant majority of high end vehicle sold are being acquired by end users not speculators. There is plenty of money to buy and although the market may not significantly inclusive of the Chinese it is still is global.
Rick,
Do you actually buy and sell cars for a living ? Are you actively looking to buy cars or are do you comment on their condition and price after they sell at auction?
Are you an paid economist?
I’m not belittling your day job as someone who “writes” about what they see but it’s sort of like being a guidance counsellor isn’t it?
No one with any real street cred as compared the last false markets bubble to the rise in prices over the last few years, actually since 1991.
What stood out to me the most was your observation about GTOs going back to $35m. That “correction” would be roughly 30 months ago…..not exactly a massive failure if the Violati car did that.
Everyone is welcome to their own opinion but I don’t know a soul who actively participates in the market who shares yours.
Steve S.
Hey
Interesting thoughts. Personally I agree that much of the market is overheated and will correct but I also think at the top for very rare and interesting cars prices will generally rise. There may be a pullback but those who buy because they love won’t sell just because the market corrects. While some cars never see the road and have become simply fish for buying and selling there are still some of us who drive their cars and think of them as fish for eating. Never eat a fish that is for buying and selling and never sell a fish that is for eating.
Best
Jim
I think most are missing the point that Rick is making. Before I state it, in full disclosure I am a collector.
A rising tide should not lift all boats. And history always repeats itself.
In 2005 when Hemi Cuda Convertibles took off and sold for seven figures, the subsequent values of all Hemi cars took off with them. My Hemi Charger 500 was selling for close to half a million. Today the Charger is selling for less than half that while the Cuda just brought in excess of $3M. The reason is pretty simple, one is a rare car while the other isn’t.
Rewind the clock to 1999. The gold rush was on, anything with an ecommerce idea was trading for stupid multiples. The bust occurred when realization hit that not all these companies were worth investing in or had positive cash flow. Herd theory.
When a rising tide is lifting all boats you should be very afraid. The rise in Gullwing 300SL values should not effect the values of 190SLs, but it is. The rise in truly rare Ferreris should not effect 330s, but it is. The guy who purchases the 250 GTO this coming month will not regret it but the guy who drops $250k on an XKE will, one is rare and the other is not. The same logic applies to the guy that dropped $300K on a 69 Hemi GTX in 2005….it will never get there again without the help of years of inflation, at which point his real rate of return is negative.
Buy what you love to look at and drive, if you jump in for any other reason you risk a costly mistake. Avoid herd mentally, it leads to busts. Always.
Mr. Carey,
I have cars, love cars, and don’t speculate. Should the market stumble, I’ll buy more cars. It’s a habit I can’t break. If there are enough people like me, and I think there are more like me than there are speculators this time around, they will create a safety brake on a declining market.
By the way, Robert is right about your website. Hire a 12 year old to redesign it for you. Damn.
James
For another perspective on this and one that is written by someone far wiser than me, may I suggest this as a compliment to Rick’s piece?
http://thegoodfellowperspective.com/the-dashboard-lights-are-flashing-is-anyone-paying-attention/
There are major differences between the true bubble years ago and the state of the market today.
At these prices what is Sir Stirling Moss’ Mille Miglia winning Mercedes Benz 300 SLR worth?
It’s interesting that regardless of whether folks think it’s a bubble or not, most people ascribe the rise in values to easy money central bank policies, influx of new buyers from China / Russia / Middle East / etc, or perhaps newfound appreciation for cars as art / investments / etc.
Few people seem to cite demographic trends in developed countries (e.g. US & Europe primarily). Thanks to the baby boomer generation we have a very large cohort of car collectors now in their late 50s – early 70s who have substantial wealth, time to use collectible cars however they choose (touring, racing, Sunday drive, garage decoration, etc), and a drive for self-fulfillment and “bucket list” mentality that perhaps prior generations didn’t have.
So regardless of whether we’re in a near term bubble due to easy money or other commonly cited factors, I believe we are almost certainly in a mid term maximum for collector car values as baby boomers have time, money, and the desire to devote to cars. I suspect appreciation and interest for collector cars among subsequent generations will be lower and aggregate demand for collector cars will decline once baby boomers age out of active collecting. There will always be car collectors and Gen X certainly has some affinity, though a remarkable number of millenials have little interest in car ownership even as mundane transportation.
FWIW I’m a fairly new collector in my late 30s. Irrespective of financial capacity to purchase and own them, the interest level in collector cars among folks around my age seems markedly lower than older generations. I purchased my first vintage car in 2012, purchased 3 in 2013, and have bought 0 in 2014. I’m not going to stop collecting and I’m not going to simply wait 0-10years for the demographic shift to happen and prices to decline. If we are indeed in a bubble and it bursts, I will gladly be greedy if others are fearful. But in today’s market I would only buy a vehicle that I’m excited to own and enjoy for the long term, regardless of fluctuations up or down in prices in the next year or two.
I am a car enthusiast and a “serial” collector—I sell one to buy another. I experienced the 1989 bubble and I agree that we are in another one. But I am mystified that the crash hasn’t happened yet. The “Great Recession” didn’t trigger it. On the contrary, it drove people into collector cars as a place to store wealth. The recent stock market downturn could give further impetus to that strategy. Or it could start the decline. The Monterey auctions will provide some insight, to say the least. There is much pessimism about the world economy right now. There appears to be a consensus that we are at least in for a “correction” and more than a few prognosticators are predicting far worse. The listed ten points are in play today, but there’s another factor; the Federal Reserve’s massive “Quantitative Easing” program has pumped huge quantities of new money into the world economy. This is going to affect confidence in U.S. currency, which is held worldwide. This could be a reason to keep interest in high-end collector cars as a hedge against inflation (which could be massive).
Back in 1989 I saw the bubble and I owned a Ferrari 250 GT that I bought cheap years before. I was a car enthusiast before I was 10. I was already a racing enthusiast as I entered my teen years and I watched and loved in particular the 250 TRs, SWBs GTOs and Porsche Spyders. You would think the 1989 bubble wouldn’t affect me, but I sold the Ferrari. So did some of my Ferrari-enthusiast friends who believed prices would never again approach such heights. But some owners didn’t sell. The reason is obvious: Those who sold valued the car more than the money. (did I really need to say that?). Apply that reasoning to such factors as the Fed’s monetary policy, world economy, love of cars, psychology, the weather on the day of the auction, etc., etc. and people “will act to improve their situation as they see it.” (paraphrasing Ludwig von Mises).
Also: Those who didn’t sell their Ferraris in 1989 rode the crash all the way down—and then all the way back up to the stratosphere 25 years later. And they got to enjoy their wonderful Ferraris along the way.
Rick, with all due respect from a person of your generation, I believe that Robert, Matt Eusen and others understand today’s world better than you do. But be of good cheer. We are indebted to you for provoking this discussion. And in fact I think your antiquated viewpoint prompts us all to get up to speed. Cars, art, wine markets are flies on the wall compared to just about everything in life that will be affected by GLOBALIZATION and TECHNOLOGY. Let’s be smart and enjoy life while we can still drive internal combustion cars. In 20 years most will be off the road.
AH WELL. EVERYONE IS AN EXPERT—-NOT.
NEITHER AM I . BUT THIS OLD RACER HAS A UNIQUE PERSPECTIVE. I WAS ONE OF THE FOUR ORIGINAL N.A.R.T DRIVERS ASSEMBLED BY LUIGI CHINETTI. FOR ALMOST FIVE YEARS I DROVE THOSE PRICY TESTA ROSAS.
PHIL HILL WAS TEAM CAPTAIN, DAN GURNEY THE SPRINTER ME, ALLEN MARKELSON THE FINISHER AND BRUCE KESSLER THE DESIGNATED HITTER. THAT IS WHEN A FOURTH CAR WAS AVAILABLE. –HA. BRUCE WAS VERY QUICK BUT HE HAD OTHER COMMITMENTS WITH HIS BUDDY REVENTLOW AND THE SCARABS.. DAN AND I WON BOTH HALVES OF THE USAC ROAD RACING CHAMPIONSHIP ( USRRC) A SERIES THAT CONTINUES TO THIS DAY.
AS TO PRICES ? AFTER MY LAST N.A.R.T. RACE, THE 1960 GP OF CUBA, I WAS OFFERED CHINETTI’S 1957 FERRARI 500 TRC FOR THE SUM OF $7,500 NET.
REALLY —THAT IS WHAT IT HAD COST LUIGI AND THE CAR WAS ABOUT TO BE REPLACED BY THE TWO LITER DINO SPORTS – RACER. MY CAR WAS ONE OF THE FOUR ” LOW-WAISTED” TYPES, RESERVED FOR FACTORY DRIVERS, OUT OF THE SLIM TOTAL 19 500 TRCs. BUILT. PHIL THOUGHT IT ENZO’s MOST BEAUTIFUL . A FEW YEARS AGO, AT VILLA D’ESTE IT SOLD TO A MILANESE FOR $4.2 MILLION. LAST WEEK A CANADIAN FRIEND WITH ONE OF THE OTHER TWO REMAINING TURNED DOWN $5 + MILLION. THE THIRD AND LAST IS OWNED BY BILL MARRIOT AND HAD THE PLACE OF HONOR AT JOHN BURN’S 2013 CAVALLINO CLASSIC.
“OCEAN JOE” RECENTLY RECOUNTED HIS VERSION OF THE TALE OF THE “STOLEN FERRARI”. HO HO HO . I FOUND IT WERE JACQUES SWATRES’ HAD HIDDEN IT IN PLAIN SIGHT. AGAINST THE STATUS QUO ORDER OF AN OHIO JUDGE OLD JACQUES SHIPPED THE CAR FROM HIS BELGIAN ECURIE TO MARANELLO AND THE FERRARI CLASSIC TO COMPLETE HIS $600,000 RESTORATION. OBVIOUSLY, THE CAR WAS SAFE THERE AND SECURE IN THAT NO ONE IS ALLOWED INTO THE CLASSIC SHOP.
EXCEPT, FORMER SCUDERIA FERRARI DRIVERS — LIKE ME.
AFTER SIGNING ABOARD CHRIS GARDNER’S MERCEDES SUV AND SEARCHING ALL OF CENTRAL EUROPE, A TRIP OF ABOUT 670 MILES I FOUND THE CAR, COMPLETELY RESTORED — BY LUCK & THE CONVENIENCE OF MARANELLO BEING DIRECTLY ON OUR WAY BACK TO GARDNER’S SWISS VILLA. A LOVELY PLACE HIGH ABOVE LAKE GENEVA, SURROUNDED BY ACRES OF HIS PRIVATE VINEYARD.
THIS PAST JUNE, AT THE FESTIVAL OD SPEED, BOHAMS DROPPED THE HAMMER ON FERRARI 375 PLUS. THE WINNING BID , BY AN AMERICAN ZILLIONAIRE , WAS 9,600,000 POUNDS STIRLING —PLUS BUYERS COMMISSION. I AM STILL ANXIOUSLY AWAITING MY 5 % FINDER’S FEE.
LOOPY PRICES, YOU SAY. WELL, FELLOW GEAR HEADS, TWO YEARS AGO YOU COULD HAVE BOUGHT THIS FERRARI FOR EIGHT MILLION DOLLARS —- YOU DO THE POUNDS TO DOLLARS MATH. — YOU GET A 100 % PRICE RISE– IN TWO YEARS.
WHY ? AS A OFFSHORE BANKER I CAN TELL YOU. VERY WEALTHY FOLKS WANT OUT OF THE EURO — NOW. AND, IN MY OPINION RIGHTLY SO.
I SHORTED THE EURO EARLIER THIS YEAR AT JUST UNDER 140 AND … BOB’S YOUR UNCLE.—- HA
OLD RACER
Allen,
Regardless of the positions on prices (and the Euro, a currency that was 1.20:US$1 when launched) I’d be delighted to get together with you sometime at your convenience to capture your recollections, history and stories.
I had a date with Bob Grossman for that purpose a few years ago and he had the audacity to pop off before we could meet.
Talk to me.
Rick
The sky is falling…I prefer to enjoy my cars rather than worrying about whether they will
increase in value.
Short story, around 1977 in Brooklyn, NY I was around 8 years old and was not into cars. I saw this weirdly shaped car and it knocked me for a loop. It had the word “Carrera” on the lower part of each door and I was instantly smitten with the Porsche 911. I get goose bumps thinking about it even as I type. I am an enthusiast. Enthusiasts feel the passion for the cars, the longing to drive them and not to put them in a box until they rise in value. Just like in the late 80’s, today I watch the market and I see the ridiculous sums of money trading hands and it bothers me. I work very hard and am still not where I need to be to buy a classic. That is the only upside I can see because it gives me more time. Rick, an excellent and accurate article, Bravo.
We enjoy reading auction reports, but we’ve come to recognize that when the auction reporters step out of their role of reporting the “last sale” and attempt to get into the business of forecasting, or pontificating on market performance, things can get a bit fuzzy.
Look at the 1968 Ferrari 330 GTC. According to Mr. Carey, the seller is going to realize an 18.45% annualized investment return for the 12 years that it was held.
A closer look tells a different story. According to RM Auctions, the seller, who bought the car for $85,250 in 2002, invested roughly an additional $100,000 into the vehicle. Add this to the other costs associated with ownership and the real cost is likely somewhere around $205,000. Using the same sale assumption as Mr. Carey, we get a more realistic return of slightly over 10%.
Separately, Mr. Carey seems to have been drinking the auction house Kool-Aid by suggesting that he wouldn’t be surprised to see values exceed the auction house estimates.
We took a quick look at the results of the RM/Sotheby’s sale last fall in New York. Of the roughly 34 vehicles offered, 22 of them either didn’t sell or sold at a discount to the pre-sale estimated range, 9 sold within the range, and only 3 exceeded the range.
We’re ardent advocates for the investment case for low production collector vehicles. As we see it the market is far less frothy and more disciplined than the Mr. Careys of the world would have you believe.
The fact is that this article could have been written last year, three years ago or 15 years ago.
“There is no inherent value in a Dino…” Seriously Mr. Carey?
Rick
I loved your take on this ridiculous run up in prices and the fact that it is unsustainable. I am curious to know what role you think Keith Martin plays in all this. As I recall, you once wrote auction reviews for Sports Car Market. Are you complicit in fomenting the situation by virtue of what you wrote for Martin? Do you feel that Simon Kidston has any business having a regular column in that publication? From my viewpoint, Sports Car Market is one of the main engines driving this nefarious boom. Do you agree?
Ohhhh, David, I’m not gonna touch that one with a 12-foot pole.
Rick
While Rick’s bona fides are impeccable I suspect his opinion is based on his perception of who and what the market is today vs the so called ‘good old days’.
Hmmm, looking through the past darkly. I’ll avoid the temptation to nit pick and drill down to the gorilla in the room: The Buyer.
Cast yourself back to the heady days of yore, the late eighties from which Carey wants to base his forecast. The nose-bleed run up in prices became a dealer-to-dealer or speculator-to-speculator phenom, take your pick. Retail buyers simply could not process value changes fast enough to jump in and, in retrospect, what a shrewd (passive) move on their part! A house of cards provides little shelter in a storm.
Today is a different market. Sure, dealers, brokers (full disclosure: I am one), auction firms and all manner of cottage industries now serve a growing legion of eager and active buyers at the retail level and across a broad range of prices and vehicle types. Is $50K is the new entry level normal and, what, $1M++ the new “investment grade” normal? Dunno, and maybe those figures will prove obsolete by the end of next week’s Monterey sales. Yet I disagree with some observers suggesting that $10M+ transactions and acquisitions by the super elite form a data point with legs other than what the rich have always been capable of doing.
It’s about The Buyer, stupid. Let’s not wallow in revisionist thinking, coulda, shoulda woulda and, instead, recognize that demand for great cars a fact of life. It’s just a question of supply and, as a result, pricing. Enthusiasts are driving today’s market and auction companies have become the market makers. I see no value is dissing’ Dino’s as lacking intrinsic value (like WTF did that come from?) nor comparing Corvettes to 190SLs. I like Frank Stella and you like Jackson Pollack. So what?
Rick, while I appreciate your sage observations please take the considered comments from those in the game versus easy sound bites from arm chair enthusiasts easily smitten and swayed.
Nice commentary and replies! I think “classics” have not seen the price instability,because of lower demand. Some buyers wants cars they can show off, and a classic might not be the right avenue for some buyers. It will be interesting to see how Ron Pratte fairs in Janaury when he sells his collection of eclectic cars.
My observation based on watching Mecum, B-J, Auctions America on TV and attending Gooding, RM, and Bonhams in Scottsdale: there are a crapload of people out there with more money than brains. Nothing new there. Six figure Merc 190SLs, I rest my case.
Well, I enjoyed the banter for sure. Sorry, some seemed to get a bit personal though. I’m just turning 60 and have been going to Hersey since I was five. Family collected cars, I have owed over 300 in my life. Pro racer too. I see both sides of the situation here. I stick to collecting cars I love, not because I think I’ll make money on them. Fact is, we all love cars and the preservation of them. At my height I had 14 at once, but I couldn’t drive them all, so I’ve gotten down to four. If I sell one, it gets replaced with another. Then they get the attention they deserve. I know guys who have more money than brains and just buy to buy….cause they can, and could care less about their cars and know nothing of their history. They can do what they like with their money….it’s their money. Again, I buy for the love of the car. Some were cars I remember riding in with my Grandparents (1966 Cadillac Eldorado Convertible) or my 1957 T-Bird with my Dad. My NSX is just fun all around and I’ve had it ten years. The Caddy 20 years. I’ve had Ferrari’s, Lambo’s, Mustangs, Alfa’s, MG’s, Jags, on and on. We are all in the same club lads. Be nice to each other, and I’ll see you on the road!
“A bull market is like sex. It feels best just before it ends.”
– Barton Biggs
I suspect that by the time the tide goes out we’ll discover that there was a lot more leverage being used than is admitted to…
I am reading your comments since 1 hour! I feel stupid….but very happy! I know M. Carey personnaly, and have a lot of respect , he help me (and partners) to sell my futurliner to M. Pratte many years ago…and did a Great job. But I find him very negative about actual or coming situation, also his opinion on the Dino (i own one since 15 years) is very hard! I am not rich, I am a retailer (somebody here say retailers are buying 20-30k cars) and worked all my life motivated to buy my bucket list cars. So I started at 300$….650$…etc….now I own 34 cars!!! Never in goal to make money, but to appreciate, drive,look,wash and maintain, and drive with my young daughter. We bought the futurliner for $10,000 for fun, rebuilt it, rent it, pay restoration with the rent, and sold it for $4m! Wasnt the goal, but gift from heaven. Now I am 55 and lost some parents and friends, so the car bucket list is more urgent. So since one year I bought my topof my list cars (i already own a Daytona and the Dino) I bought a 274 GTB4 and a 300 SL (yes, at Amelia ex Nathalie Wood). I feel stupid because, yes…I morgage my house….yes maybe I pay too much. I feel happy because, they are here in my garage, I see them everyday, I drive them every +-20 days, the make me feel great, and my daughter will have great souvenir together in these piece of art! I dont print money, I still have to work hard, but it is so great to realise our kid’s dream. In long term I am shure these Icons will raise in value. Dear M Carey, I respect your opinions, but please, let us dream, realise them….and not die and say” I should have”….
Sorry some mistakes, I am French speaking. You understand its a 275 GTB 4. Thanks.
Thanks Rick for having the courage to write this article. Most automotive journalists wouldn’t dare question this boom for fear of jeopardizing all the money flowing to brokers, collector car “seminars”, appraisers, auction houses, etc. So, again kudos for courage.
I agree with your market assessment and as a former commodities trader have seen these same gyrations in pricing and the inherent emotions of greed whether in soybeans, pork bellies or gold. No difference and your references to books like ‘Devil Take the Hindmost” is spot on. Many of you commenters would do well to read the book and the history of speculation.
The only difference I see this time vs 80s/90s is a broader global pool of wealth for the market ( nee brokers and auction houses) to tap into. The first international automobile race ever in China was 1995…think about that for a moment. What historical perspective could any person from China have for auto racing which is the pinnacle of automotive collecting.
When the market gets soft ( and it will at some point) the brokers will hunt for the next wave of buyers in order to generate their commissions and maintain a trading volume. And, when the brokers start pitching “Italian art” to Chinese investors like artwork from the Ming Dynasty, sell…
Rick…Excellent article!!…A couple things different in ’89-90 “crash”-the 1988 death of Enzo Ferrari and the rampant Ferrari speculation immediately afterward,coupled with the Japanese economic malaise in those years,Many Japanese speculators “dumped” their cars,thus spiraling the meltdown.I most definitely agree with your article-prices being paid for CERTAIN cars are reaching insanity level.The old adage: “when people are greedy,be fearful,when people are fearful,be greedy”..I’d hate to be buying certain cars right now…Re: Keith Martin Sports Car Market-my favorite magazine,but after reading it,sure makes a car collector want to go out and buy certain collector cars he or she may want before they get more expensive…but,I learned a long time ago-judge the content and opinions of a magazine by observing their paid advertisers-i.e: Auction companies and collector car dealers
About me: Amateur Macroeconomist (there is no other kind), and modest car collector (6 cars).
Another old saying on Wall Street is “the market can stay irrational longer than you can stay solvent”. There is a sub-text in that, (1) markets are unpredictable because (2) everyone has a different (and constantly changing) definition of “irrational”.
The problem with a discussion of “Is it a bubble?” is that “bubble” is such a loaded term. For most people it implies a vastly overheated market poised for an imminent “crash”. But when did this “bubble” begin? Was it in May 23, 2008 when the ’61 Cal Spyder sold for a record $11M? Was that the ‘irrational’ moment? Or was it March 12, 2011 when someone paid $225K at RM Amelia Island for a ’64 Porsche 911? What is the “correct” price for a particular classic car?
Since no one can say when the “bubble” started, how can we expect to predict when it will “burst” and to what degree?
Prices in this market have risen for a variety of reasons, not the least of which is few other investments are perceived as safe and also offering a decent yield, but also for the many other reasons already stated by others in this discussion. Prices will come down when either (a) the consensus among collectors is that prices are too high and a lot of collectors head for the exits or (b) when some external event makes a lot of collectors decide to sell all at once. That’s all anyone can say for sure.
Dust off an old copy of “Sports Car Market Newsletter”, say from 2002. Read the commentaries on “well bought” and “well sold”. They’re meaningless now (and were then) because no one can predict the long term direction of this or any other market.
I would add a book to the excellent mini library created by Rick, “Black Swan: The Impact of the Highly Improbable” by Nassim Taleb. It describes how people have a tendency to come up with simplistic explanations for fundamentally unpredictable events after the fact.
Side note to Rick: If you really believe a Dino has no value, are there any cars you might currently own that also have no value? If so, please email me and I will send a truck over to pick them up.
“I made my money by selling too soon.”
While we’re at it I’d like to debunk a favourite SCM meme – that the recent massive increase in collectible car prices are just “catching up” to other markets.
1994
250 GTO 3909 sells for $3.5M
S&P 500 opens the year at 466
2014
250 GTO 3909 worth $50M+ (up 14X)
S&P 500 at 1930 (up 4x)
The GTO would have to shed 75-80% to match the increase in the markets…
You can do the same math for almost any B grade or higher collectible over the last 20 years and see a similar result.
There are some misunderstandings here.
The collector and classic car market is not exempt from the standard supply and demand curve dynamic. Prewar cars, particularly mass-produced American ones, are not worth much because there is an over supply, and few people alive today are interested in buying more of them. Comparatively rare postwar European sports cars are popular among the demographic of people whom control the money in today’s world. They seem to be very valuable.
Some of the value increase is due to the fact that the cars have been restored, rebuilt, and improved at great expense, and that cost is not necessarily accounted for when simply citing the chassis number by year at auction…. I sourced 330 GTC chassis number 10007 from a long-term owner’s garage in Northern California and sold it on the course that took it to auction back east. The owner I purchased it from brought it-from memory- for $60,000, and enjoyed the car for many years on the road. At that time the purchase was a sizable percentage of his entire net worth, and when the value grew to be several multiples of what he had in the car, he no longer felt comfortable driving it. After years of indecision that made him look like a visionary, he sold the car for about 6x what he had in it (but he had to suffer with owning a Ferrari V12 road car that whole time).
A quarter-billion dollars in Ferraris sounds sounds like a lot of money to be placed at any one auction cycle, but it is important to remember that there will be several well-established collectors in the audience who single-handedly COULD AFFORD TO BUY ALL OF THE FERRARIS AVAILABLE IN AUGUST, without even hardly changing their lifestyle. They might just add them to their already existing collection of great automobiles which have proven to be good investments for them in the long run….
The market value of any given asset really is what someone is willing to pay for it. If the auctions are not successful and the market is not willing to pay the required price, or broad enough to absorb the amount of inventory being offered, then there will most likely be a correction, and it could possibly be significant. If the cars this August sell for what everyone expects them to, then that’s really what they are worth, like it or not.
Rick, well written and intriguing article. I agree with many of your observations. As someone who has never spent more than $20,000 for any car, new, used, or collectible (you read that correctly: twenty thousand dollars), allow me to provide some perspective from the bottom: I see the “bubble” affecting cars in the sub-$50k range also.
Two weeks ago I was at Mecum in Harrisburg. Thursday they had THREE Alfa Spiders, all red, cross the block. One was a ’69 round-tail, one was late ’70’s, one was late ’80’s. All three were #3 condition drivers, nothing special. My price guides and my own gut from following the market said that the two newer cars were worth $5-6k. Each of those sold for $13,000, which frankly was crazy. I hope the purchasers were end users who plan to drive the cars.
BTW, I’m 60 years old, and have owned a ’57 Ford Retractable, ’67 Dodge Dart GT convertible, ’57 BMW Isetta, ’72 MGB, ’68 Mustang California Special 390, and currently own a ’67 Alfa GT 1300 Junior which is totally original. (Rick, we met at Hershey 2012 where I sold the Isetta). I have many friends in the hobby, from guys who have salaries in the 5-figure range, to men who own car dealerships and have some expensive toys. My friends and I all live by the same basic rules: we love cars, so we buy only what we like, and then we drive them. When it’s time to let go, if we make money, good for us, and if we don’t, so what.
Must agree with Mr Reina ; the top end of the market probably isnt quite ready to crash yet, but the sub 50k cars that regular / real people play with are bound to ‘correct’ any moment now; theres just too many of the cars and the people in that bracket are becoming ‘poorer’ by the minute. That demographic – middle class – is being systematically destroyed and we have less and less to spend on old cars. Combine that with the fact that the folk interested in collector cars are becoming older, and the price bubbles have to break soon.
The mega dollar cars may well hold for awhile, but even that has to end. There is a very small – and growing smaller every day – percentage of the population that can afford such, and when that market becomes saturated/satiated, then those prices will begin to shrivel also.
Someone above correctly stated that there is little to no ‘hope’ in emerging economies for prices to continue to rise. Red chinese have, as a whole and as an example, no appreciation for the historical value in vehicles or even wholesale appreciation for ‘Western’ aesthetics. They may buy gold plated Range Rovers or Ferrari’s latest with gold leaf dragons painted on them, but my guess is that 250GT Lusso’s are pretty thin on the ground…
I appreciate a prior commenter alluding to the ‘possibility’ of media driven frenzy in speculation and prices on old cars. I’ve been saying this for years. And if I hear one more moron mention ‘I saw one JUST like it sell for X dollars on the teevee..so I think my [condition 3 driver with the dash hacked up for a stereo, wrong engine and shag carpeted ] car oughta be worth about that’ , I think I will scream and begin vomiting uncontrollably.” BJ ” indeed…
“The best thing that could happen in Monterrey is that the no-reserve Ferrari 250 GTO sells for $35 million…”
Sanity prevails.
Mr. Carey,
Now that the Monterey auctions are history, please debrief us. What is your take on the results?
Dear Rick, An excellent article about speculation in the market. The only thing missing was a discussion about the demographics of the buyer…which is the 55-65 age group. There’s been a bull market there and on the other side I don’t see any demand. If you watch a Mecum auction, you’ll see no young or younger faces in the crowd. What happens when these buyers cross into their ’70’s?
I bought a DB4 in 1988 for $11,000 and they were going begging and selling at a more than 60% discount to a new BMW, for example. Now, with the build numbers unchanged, they trade at a 600-700% premium to the same . I put it down to the demographic and means of the buyer.
You have my admiration for calling out this distortion
Clay,
Overlooked is the fact that demographic brackets keep bringing in new individuals, i.e., people who are 54 this year will be 55 next year. They keep bringing their new money into their search for expression and entertainment as their old passions (kids, houses, yachts, golf, etc.) are satiated.
The bracket is not static, it is dynamic.
Looking at trends today it strikes me that modern “instant collectibles” like the Ford GT are big hits, bringing double their sticker prices (or more.)
I see new collectors sticking their toes in the collecting pool to test the water with cars that are modern, user-friendly and blindingly fast. Will they in time gravitate to older cars with finicky carburetors, balky mechanical gearboxes and idiosyncratic suspensions? Time will tell, but the performance of really old cars in the market indicates that the fascination is infectious.
The market performance of “continuations” like the Jaguar Lightweight E-types will be telling.
This is a continuum made up of many complex parts. I have no monopoly on opinions or observations and am learning every month. Thanks for your thoughts.
Rick
As an alleged expert in real estate for just shy of 2 decades I can tell you we never saw the housing market crash coming… at least as fast and as hard as it did. Those who owned properties they could both afford and enjoyed were never regretful. As with the collector car hobby if you’re not a speculator but instead a genuine enthusiast you have little to fear but if you raise your paddle on the mere faith and thrill that a continued run up will line your pockets you had better remember the risk reward dynamic.
Some differences that make the car hobby far less prone to collapse is 1) Wall Street is not buying & selling the notes and 2) it is challenging to buy a 6 figure vehicle with zero down 3) You cannot overbuild and flood the market with a vehicle they stopped production of 50 years ago.
Mike,
All good observations, but … you never saw the RE market crash coming?
I saw it coming but I had a few more years’ experience than you, having ridden the re-fi wave up to the late 80’s and then been wiped out in ’88-’89 when it all came tumbling down.
As to your cited differences: 1) there are funds purporting to help ‘investors’ participate in the collector car boom; 2) there are finance/leasing companies actively approaching collectors to leverage their existing collections, put money in their hands and facilitate further acquisitions (see late 80’s re-fi comment above); and 3) there are plenty of cars out there looking for intermediaries willing to buy them out of barns and garages to fill in the fads (190SLs, short wheelbase 911s, FJ40s, Ferrari Boanos, etc.)
While the supply may be inevitably a ‘zero-sum game’, until every car is found and marketed there are opportunities to fill in the blanks, as we see regularly with seemingly inexhaustible supplies of XKEs, 190SLs and early 911s.
It is wrong to think of the collector car market as a closed loop, even if a few cars turn up again and again. There are millions of cars out there waiting to be pulled out of barns, fields, carports, collections and storage units as demand for them picks up, e.g., FJ40s.
Rick