The collectible car market is a popular way to invest money. It is a market that attracts not just car enthusiasts and petrolheads, but also serious investors.
Like many industries, the collectible car market is currently feeling the effects of the global Coronavirus outbreak. But it is a marketplace that has grown substantially over the past 50 years.
Racing Edge spoke to classic car dealers at Fantasy Junction, Oldtimer Australia and LBI Limited to break down what makes the collectible cars market attractive.
What makes the collectible car market an attractive alternate for investors?
Diversifying your portfolio
Collectible cars can be a good way to diversify a portfolio. It is an alternative way to invest money if the stock market falters. When the stock market is doing well, investors are reluctant to pull money out or invest elsewhere. But if the stock market weakens, all physical and tangible assets - from collectible cars to art – seem to benefit.
If there is a flutter, investors may pull money out before it drops further. That is when we see a movement in the value of classic cars.
Enjoying a tangible asset
Given the conventional stock market’s recent volatility, there is comfort in seeing, touching and experiencing your investment. Not just staring at numbers on a computer screen.
Spencer Trenery from Fantasy Junction says: “Collectible cars have a tangible existence. They’re not just solely for the purpose of investment, growth and preservation. They have an emotional aspect to them and an enjoyment aspect. And a use feature that stock and bonds and other devices just don’t have. People are interested in cars and communities form around a lot of people’s intersegments. The cars bring people who have similar ideas in mind together.”
What are the risks investing in collectible cars as an asset? What can someone do to mitigate them?
All investments carry risk
Buying collectible cars carries risk like any other form of investment. The global coronavirus outbreak, for example, has shifted focus towards health and away from the market. This has had a downward effect on the values of collectible cars.
Collectible cars need maintaining over time. Due to a vehicle’s age, it can be delicate. This can be time-consuming and expensive, depending on the car. The care and attention needed can put some people off. Which is why there are always cars in poor condition.
Research is king
Would you invest in the stock market without doing any research? Collectible cars are the same. Three important things to consider when it comes to buying a classic car:
- Car history
- Car provenance
- Model number
Avoid buying cars in substandard condition, or those that have suffered notable damage in the past.
This is where being an enthusiast – not just an investor – makes a huge difference. You’re knowledgeable about the car you’re buying. Knowing what specifications of models are desirable, or how rare they are, gives you a significant advantage in helping mitigate the risks.
Cars that have poor history and provenance may suffer in a broad market where there are more cars than demand for them. Collectible cars that have a very good provenance have a chance of generating value.
Mark Jansen of Oldtimer Australia says: “If you pay a little bit more but for the very best car, you’re going to be alright in the medium to long term. If you pay a little bit less and the car wasn’t very good – in other words had a questionable history or provenance, then I think it’s going to be an issue.”
What makes a car collectible as an asset?
There are a number of things that prop up value in a collectible car. The dynamics can be emotionally or seasonally driven or determined by other factors, like finance and currency exchange rates.
Rarity in production numbers is important, although not all rare cars are valuable.
Visual attractiveness is another key concept. A Ferrari Dino is very beautiful – but it is not an ultra-rare car or a desirable configuration. But it is achingly beautiful, to the point where people assume it is a valuable car.
The ability to use cars in major social events, such as the Monterey Historic or Colorado Grand, should never be overlooked.
A collectible car that is eligible for those sorts of events is appealing to a financially well-to-do collector, even if they do not end up entering.
There are a few collectible cars that are considered as a pinnacle evolution of mechanics. Models such as the Alfa Romeo 8C or Bugatti Type 57 – amazing engineering masterpieces for an era. These sorts of cars are produced in few numbers and tend to be very, very valuable. They are collectible cars to a very core audience who understand and appreciate the mechanics behind the cars.
LBI Limited says: “In simplest terms, if it was cool back then, it is likely to be cool and collectible now and in the future. Factoring in production numbers, a brand’s pedigree, the originality of a specific example, the cost of ownership, as well as historical significance. All these factors are ultimately considered in determining the future collectability of a car.”
Why has buying collectible cars become a popular way to invest money?
There is an intimate, emotional connection with collectible cars. Many grew up idolising vehicles they would eventually buy. They had posters on their bedroom walls.
There is a deep-rooted romanticism for that era of automobiles. Having that connection, an appreciation of a car’s history and mechanics, is key to understanding value.
A boom of wealth
Ultimately, the market was driven by a pocket of wealth cultivated by the baby boomer generation. But it is also a hobby born out of love for these cars. A hobby that grew in popularity and, as a result, saw prices rise.
For example, take someone born in the 1940s: a lot of these cars started as posters on their walls. By the 1960s, when they were 18 or 19, they idolised Ferraris and Porsches but could not afford them. So they went to college, started a career, had a family, started a business and sold it to retire.
At this point, they can afford to go out and buy the car they’ve dreamed about for 25 years. All of a sudden, a car that was worth $20,000 when it was new is now worth over $1 million.
Now we are seeing the baby boomer generation moving closer to 80 and 90 years old. They’re realising they do not need a collection of 10-20 cars. They do not want to buy any more - they want to sell. So now it is getting to a point where supply is outreaching demand.
Mark Jansen from Oldtimer Australia says: “Regardless of whether you’re a millionaire or the average person with 2.2 children and a dog – you can go out and buy yourself a car. Whether that is a 1970 MG B for $15,000 or a $1 million Ferrari. And the person who owns the MG may be as passionate and love his car as much as the person who owns the Ferrari. It does not matter where you live in the world, your race or religion, how wealthy you are. It’s a hobby that absolutely everybody can enjoy.”
How does one invest in a collectible car as an asset?
Buy what you like
Investing in a collectible car is simpler than it sounds. But it remains a dangerous environment for anyone not emotionally devoted to cars. They are not like pieces of art: you do not take paintings out to events, or accidentally bump them and have to repair them. Paintings do not have complex engines that need rebuilding and maintaining.
The core factor to investing in a collectable car is buying something you like. Something you are very enthusiastic about and get immense pleasure from owning and using. Because even if it does not go up in value, or you do not financially benefit from selling it, you take great value from owning something you love.
DON’T go in on a whim!
Do not jump into investing on a whim. Do extensive research on the cars that interest you.
Research where you are purchasing from. Collectible cars differ quite a lot in condition depending where in the world they are stored.
Get the car inspected
Engage a credible entity or individual to help guide you through the process. Get the car inspected by a third party before purchase – that is important.
Some of these vehicles are 50 or 60 years old, so sometimes issues are difficult to spot.
A simple process
The buying process is relatively simple compared to investing in something like real estate, which requires numerous documentations and carries plenty of red tape. And you cannot pick up your real estate and move it to England or Australia if you want to!
Spencer Trenery from Fantasy Junction says: “With collectible cars, there are comparatively few restrictions. It is not hard for someone to identify what they like, do the relevant research, engage someone they know they can trust to inspect, and then actually buy the car and have it shipped to them.”
Are there any trends to collectible cars that appreciate or depreciate in value?
Nobody has a crystal ball. Trends of valuable collectible cars tend to be fluid. Especially given the effects of the recent Coronavirus pandemic.
Collectible cars that are valuable now have all gone through periods of their existence where they were not desirable or valuable. The Alfa Romeos of the 1930s were not valuable in the 1940s or early 1950s – they were just old technology!
LBI Limited says: “As generations of car enthusiasts age and gain discretionary income, they look towards the vehicles they lusted after during their younger days. We are currently seeing the millennial generation developing a strong foothold in the car collector world and bringing with them the cars that graced their walls and minds as they came of age in the late 1990’s and early 2000’s.”
What other costs should potential collectors be aware of?
The obvious ones
Obvious costs for collectible cars such as storage, insurance, registration, taxes, logistics – those are quantifiable. It depends where you are and what you intend to do with the car. Import taxes vary depending where you live so figures can be substantially different.
For example, someone buying a $200,000 Jaguar E-Type and importing it into Manila may pay nearly double the value compared to someone buying the same car and shipping it to San Francisco.
The hidden costs
The big one for people who do not necessarily understand cars is maintenance and restoration. Say you go out and buy a $1 million collectible car and store it in the shed for three years. You are not just going to wheel it out and sell for profit. The brakes may have seized, or the gaskets might have perished in that time.
Mark Jansen of Oldtimer Australia says: “Collectible cars are an asset class that need to be maintained. I see it all the time: Grandad’s car has been in the back shed, hasn’t been started for three years. Well, three years is really six in car terms. The brakes have seized. It’s got oil pissing out everywhere. All the fuel lines have gone hard and cracked."
"Some of these cars are very, very expensive to recommission. It may be that they need to be started and driven too. It’s fine to keep them as pieces of art, but it’s really important to understand that.”
Investing in collectible cars: A conclusion
There are many things to consider when investing in a collectible car. But they are assets that provide tremendous enjoyment. If maintained and looked after properly, they will not only give exceptional life value – but hopefully financial value when the time comes to sell.
Do your research and homework. But most of all invest in a collectible car because you will love it, use it and enjoy it.