Collectible automobiles: An investment alternative?

The world’s largest insurer of collectible cars says the market is looking healthy.

Summary: The collectible car market appears relatively healthy, growing but not yet in bubble territory. The number of collector cars sold at auction is rising and collectors have been insuring their cars for higher values. But one insurer expects modest price softening at auction houses this year.

Key take-out: For investors wondering what to buy during the dip, one insurer believes the next hot section of the premium auction market will be a handful of Japanese cars from the 70s, 80s and early 90s.

Key beneficiaries: General investors. Category: Economics and investment strategy.

As the Barron’s article below points out, the collectible car market is doing extremely well, particularly at the top end, producing stock market-style returns.

The big US and UK auction houses are having a bumper year, as is Shannons, our local Australian auction house.

As a long time “collector” (read “car guy”), I have bought and sold a number of interesting cars and have occasionally made a bit of money. Usually though I’m happy to just get most of my money back!

Cars can be an investment but here are a number of guidelines (mine) that you have to follow: 

- Buy the most original car you can and keep it that way. After market wheels, non-original engines, modernised interiors will detract from the value.

- Buy privately (or at an auction). Dealers charge a huge premium which you may never get back.

- Be prepared to own the car for the long term. In my experience that’s five years minimum.

- Only buy what you can use. Most of the appeal of a classic car is you can actually drive it. Cars that just sit will deteriorate and constantly require work.

- Auctions are usually the best way to sell but the commissions (8-10% plus an entry fee of $500.00 or so) will reduce your profit.

- Before you buy, do the research on the various models and their appeal at the time. Fortunately everything is now online from original road tests, repair and maintenance.

- Find a specialist mechanic who knows the cars and their values BEFORE you buy.

And enjoy the drive!

- Eureka Report offshore equities specialist and keen vintage car collector Clay Carter

The collectible car market looks like it’s burning rubber. Last month the Barrett-Jackson auction of 1,611 cars in Scottsdale, Arizona, attracted actors Sharon Stone and Tim Allen; pro athletes Bubba Watson and Jeff Gordon; and musicians Alice Cooper and CeeLo Green. Perhaps no surprise, then, that over 10 days the hammer came down on $US130 million worth of cars.

Here’s yet another sign of a maturing market: Last month, Hagerty, the world’s largest insurer of collectible cars, also launched the Hagerty Market Rating, an index that incorporates metrics like auction results, “expert sentiment,” and the private sales data of thousands of cars, from the 1886 Benz Patent-Motorwagen to the 2015 Chevrolet Corvette Z06. The index spits out a value each month from 0 to 100, taking the pulse of the industry.

Datsun 240Z

Any rating above 50 indicates the market is growing. The most recent reading for February comes in at 70.61, which, according to Hagerty senior manager Rob Sass, means “the market is relatively healthy,” not yet in bubble territory. A reading between 80 and 90 would be “worrisome,” he says; the index hit a low of 48.8 in December 2009.

In an earlier story on collectible cars (see Driving returns, October 1, 2014), we noted that “classic blue-chip car prices” have risen 20% to 30% per year in the past five years, stacking up nicely against the S&P 500′s 100% rise over that same period. The US market is as much driven by international buyers snapping up classic 70s-era Porsche Carreras as it is by the American celebrities that showed up at the Barrett-Jackson auction in Scottsdale.

In fact, by Hagerty’s tally, there has been a 70% increase in the number of collector cars sold at auction since 2008. The big boys want more of the action: On Wednesday, Sotheby’s acquired a 25% stake in collectible car auctioneer RM Auctions.

And yet idle a while before heading to your nearest antique car dealer. The industry is due for a “soft landing,” says Sass. What indicators is he seeing that would make him come to that conclusion? Collectors have been returning to insure their cars for higher values since 2011, when the premium-priced car industry began to roar down the track again. Insurance values for cars worth $20,000 to $200,000 have been hitting new highs in each of the last 10 months.

But Sass notes that for cars worth more than $200,000, that insurance metric actually peaked back in August 2013, suggesting the brakes are getting leaned on. Sass expects modest price softening at the auction houses this year, partially driven by oil tycoons from Alberta, Canada and North Dakota feeling a little less cash flush.

So, what should one buy during the dip? Sass believes the next hot sector of the premium auction market, currently out of favour and undervalued, are a handful of Japanese cars from the 70s, 80s and early 90s. Rare examples of these Japanese cars are “just starting to show up at catalogue sales,” and Sass in particular has his eye on the Nissan 300ZX, Mazda RX-7, and Datsuns like the 240Z. Their prices currently range from $10,000 to $18,500.

We won’t bet against him. When an out of favour car suddenly catches the market’s eye, prices peel out. A decade ago, for example, you almost couldn’t give away the dated-looking Lamborghini Countach, a supercar produced between 1973 and 1990. That car now sets collectors back some $490,000, a 300% price rise since 2011, with a rare 1975 “Periscopica” version sold last year by Bonhams for $1.2 million.

However you cut it, that’s a pretty fine ride.


This article has been reproduced with permission from Barron's.