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]