Summary: Prices for collectible cars have soared up to 30% per year in the past five years. Supply is getting tighter, while demand is global, and some rare vehicles sell for more than $US50 million each. And interest in restoration is also growing. As the next generation increases in wealth, demand might improve for newer classic cars that they eyed as kids.
Key take-out: You’re better off buying a classic car that is already restored as an investment, instead of restoring it yourself – unless you are really passionate about the car.
Key beneficiaries: General investors. Category: Economics and Investment Strategy.
At an auction in California last month, a 1962 Ferrari 250 GTO Berlinetta went for $US38 million. Given the way collectible-car prices have skyrocketed, along with their repair costs, you now have to view refurbishing classic cars "as art restoration," claims Jay Leno, the former talk-show host whose 128-vehicle classic-car collection is recognized as among the best in the world.
Restoring a classic car can also be deeply satisfying. "I tell jokes for a living," says Leno, who spoke to us while working on a fuel regulator for his 1930 Duesenberg Model J, among the rarest of cars. "Some people might think a joke is funny and some not. It's a matter of opinion. But when you take something beautiful that is broken and fix it, no one can deny that."
This 1954 Ferrari 250 GT Berlinetta Competizione was formerly a Detroit riot wreck. Photo: Courtesy of Tom Papadopoulos
According to McKeel Hagerty, the CEO of Hagerty, the world's largest insurer of collectible cars, classic blue-chip car prices have risen 20% to 30% per year in the past five years, comparing favorably to the 100% rise of the Standard & Poor's 500 over the same period. Restoration specialists are busy these days; sharply increasing values for the best-quality classic supercars has spurred sales of less rare classics, too.
Certain rarissimo vehicles, such as the 1962-63 Ferrari 250 GTO – of which only 39 are known to exist – are privately changing hands north of $US50 million, according to the trade press. The supply of cars is getting tighter, and the demand is global, with some 168,000 individuals worldwide now sitting on more than $US30 million in assets each. A lot of this new money is interested in rare automobiles – and in their restoration. In response to customer demand, Ferrari is, for example, studying the considerable investment of building a restoration center in North America, to match its fabled Classiche Studio in Maranello, Italy, according to an executive at Ferrari North America.
RM Auctions, one of the biggest collectible-car houses and a restorer, holds auctions once a month around the world. "Ten years ago, people from Poland, Russia, and other countries weren't there," says Rob Myers, the firm's founder and chairman. They are now, he adds, along with folks from other emerging-market lands. So it's no surprise that new investment vehicles – such as the Classic Car and Ultimate Classic Car funds – are also in the market of buying rare cars.
The same 1954 Ferrari seen above, as it looked in the 1980s. The car was torched in the 1967 Detroit riots, but the engine and interior parts had been removed and stored safely before the troubles started, allowing for a total refurbishment by Autosport Designs. Photo: Courtesy of Tom Papadopoulos
The Chinese are big buyers, too, even though their government doesn't allow importation of "old cars" into the mainland, says Ian Foster, an architect and chairman of the Hong Kong Classic Car Club. "For now, [mainland] Chinese enthusiasts are buying and storing them in Hong Kong. There's a lot of pent-up demand in China." It all bodes well for a hot market for some time to come.
Now apply the brakes. Imagine you found an ancient Porsche buried under milk crates at a country sale, weeds growing from the engine block. It's the model you lusted after as a teen, and the farmer begs you to take it off his hands. You smell a bargain. That's a "barn find." But before you celebrate your "steal," take a long deep breath. The farmer might know something you don't.
Never buy an old hunk for restoration unless you are hopelessly smitten. It's going to cost hundreds of thousands of dollars and take a professional 12 to 24 months to complete.
"All things equal, unless you are really passionate about the car, you're better off buying it already restored," advises Tom Papadopoulos, owner of Autosport Designs, an award-winning restoration specialist in Huntington Station, N.Y. "You can collect watches or baseball cards, but you really have to love that car to restore it." And should you fall out of love and sell the restored vehicle, know that you might even lose money. This is an inefficient market, says James Glickenhaus, investment pro and car collector. The money and time put into a restoration is "often way more than you can buy it for."
The same Ferrari, yet again, but this time driven by Frank Adams in a 1958 Bridgehampton, New York, race. To restore this lightweight Ferrari to its current luster cost $US450,000, but it is only one of two such models remaining. The other car sold last year for $US7.15 million. Photo: Courtesy of Tom Papadopoulos
But if you absolutely must fix that barn find, plan on spending $US200,000 to $US500,000, depending on model and condition. Much of that cost derives from the average 2,000 hours – again, depending on the state of the car – that repair specialists need for their work. Salaries and materials have gone up; parts on cars a half-century or older are often no longer made. In that case, they have to be fabricated from scratch, and you better hope the original maker has the specifications. Upward of $US1 million and 36 months have been spent on the restoration of extremely rare autos. "The cost [of restoration] has doubled or tripled worldwide in the past 10 years," says Christophe Boribon, national auctions manager for Shannons Auction in Victoria, Australia.
Originality is key to many collectors; installing an MP3 player probably will lower the value of the car. Lately, there has even been "a bit of a backlash against 'over-restoration,'" says Craig Jackson, CEO of Barrett-Jackson, a classic-car auction house. Some buyers want barn finds cleaned up and running, but little more. "We've sold a few that looked a little rough but broke the bank." Earlier this year, an unrestored 1956 Mercedes-Benz 300 SL gull wing went for $US1.9 million; a fully restored one sold for $US1.4 million.
Supercars go in and out of favour, but Ferrari's prancing horse remains the most popular make. "Porsche is very strong at the moment and ticking up. There are limited numbers, and Porsche looks like good value for money," says Graham Schultz, chairman of the Modena Group, a motor-sport and specialist automotive firm in the United Kingdom. (For more ideas, see our table below.) Early 1970s Porsche models are hot. A 1973 911 Carrera Turbo "went for $US200,000 a few years ago," notes Hagerty, "and can cost about $US1 million now."
It's tough to top the beautiful mid-'50s Mercedes-Benz 300 SL gull-wing roadster, particularly from 1955-56. Corvettes, for instance, don't have global appeal. But the fact that there were only 1,400 gull wings produced makes this unusual Mercedes the most-dealt vintage car in the world, says Michael Bock, head of the Mercedes Museum and Classic Center in Stuttgart, Germany. Gull wings going for $US500,000 or so a few years ago trade near $US2 million today.
Mercedes-Benz has shown slower but steadier price increases, Bock says. While the value of Porsches and Ferraris can get hurt by financial crises, Mercedes-Benz classics have appreciated by an average of 9% annually for the past 30 years, he adds.
Buying at auction means you might not get to drive the car first; that's crucial, considering even the best pre-1960s cars offer a worse driving experience than an inexpensive new Kia, with bumpier rides that belch smoke.
In addition to knowing the number of cars of a particular model in existence, provenance is important, as are the restorer, owner, and drivers over the car's history. Cars piloted by famous race drivers or celebrities tend to obtain a higher price. Last December, a 1954 Mercedes-Benz W196 driven by Formula 1 legend Juan Manuel Fangio sold for more than $US30 million. It's also possible to find restored supercars through a private seller – by consulting auto clubs, manufacturers, or trade press such as Hemmings Motor News, the Robb Report, and sportscarmarket.com, or even via craigslist.com.
Cars from the 1950s and 1960s are in demand, but in coming years, as the next generation comes into money, demand might improve for classic 1970s, 1980s, and 1990s cars. Or, as John Ficarra, marketing director with award-winning restorer Canepa in California puts it, "the big guns we lusted after as kids." Lately, the Porsche 911 Turbos, Ferrari Berlinettas, and Lamborghini Countaches from the 1980s are picking up in value, he says.
"Good cars are getting harder and harder to find. As more get restored, fewer are left," says Ficarra. "But the really rare cars will always have massive value."
Still, don't be swayed by the hype of an overheating market. You might justify a supercar restoration as an asset diversification, but tastes change, as they do in fine art, so make sure you stick to the fundamentals – loving that car.
This article has been reproduced with permission from Barron's.