Classic car bubble?

[Welshbeef]

Bebee said:

The scrappage scheme must have helped in terms of making a high volume production car rare.
I never thought the MK1 Escort would be a residual riser, crazy prices now!

My thoughts on this are that your dad had one as you grew up the first car you remember with all those fun family days out. As such pick one up now for sentimental reasons.

But yep bonkers money.

[LooneyTunes]

muffy said:

The people with real money didn't spend it for a few years after the crash in 08, so prices fell of the big ticket classic cars. From 2011 or so the big money came back in the market. Now there is a bit more prosperity in the middle income, a lot of people look at the top segment and think there is money to be made in "modern classics". The bubble will burst but it will take a few years. Maybe 2017 when the UK votes to leave the EU (or not) or when the Scots finally have a go on there own, roughly about the same time I reckon.

The bubble has 2 to 4 years to run on modern classics, as thats the area of the market where the temporary money resides. The top end will still be strong as the real money never goes away, it just stops being spent for a while when things get sticky.

Sorry for being negative but hey, thats life!

I'm going to propose a slightly different view...

I love classics (have been looking at 30s/40s stuff recently) but a straw poll in my car club (mostly guys in their 30s/40s/50s with a strong interest in cars and generally decent technical skills) recently suggested that I was something of a lone voice and there was zero interest from other members in owning anything pre-80s. If chaps like this aren't interested in pre-80s, where does that leave the owners of today's classics in terms of market?

Then look at the general economic climate: lots of folk in that age bracket have missed out on the wealth created by house price inflation and remain saddled with hefty mortgages/supporting kids at (or after!) university. They don't, and are unlikely any time soon, to have the disposable cash to buy into today's established classics.

By way of example, the cheapest E-type roadster in the classifieds is £60k (£40k for a Coupe) with lots at asking prices well north of £100k. Think forward 10 years and ask yourself this: who is going to have the cash AND desire to buy one in preference to potentially *multiple* classics of their own generation?

I'd therefore suggest that the bubble isn't "modern" classics and the current top end is unlikely to move much and could perhaps see prices fall when the current generation of owners need to hang up their driving gloves.

[SidewaysSi]

Agree on the running costs-classics or any car need upkeep if they are used at all. Insurance, servicing etc all cost money and need to be spent which is rarely factored in. Any buyer would surely want annual servicing at a reputable workshop to pay top money.

Of course you could just store the car away and look at it but that's hardly enjoying it.

2 years ago I very nearly bought Nick Trott's (editor of EVO) 911SC but pulled out of the deal at the last minute (got an Elise S1 Sport 160 instead as it was on another level driving wise) so was surprised to see who was second in line for it!

The 911 was up at £11k but was in need of an engine rebuild at some point, had 170k miles on the clock and a restoration done a number of years ago by an unknown workshop. Since then according to the running reports in the magazine he has spent about £10k on it but no word of the engine work.

So in reality that car sets him back about £26k. Add in tax, insurance etc. as well as any dealer margin if he were to sell and it is closing in on approximately £30k. I don't think that is much profit left if he were to sell today. And the rate of price rises for those cars was probably the steepest in this period.

At least with a rental property you would get income in to cover any financing cost so in general for me the better investment.

[DonkeyApple]

rev-erend said:

Not much money to be made in stocks shares banks. Houses are ok but there are costs. Cars can at least be enjoyed.

To be fair, all three markets are rampantly over bought because of excess liquidity from the massive money printing programs of the West, the insecurity of the bond markets (ie zero rates) and excessive debt.

Western equity markets have been rampant as has prime housing in the West and classic cars as billions of overseas dollars seeks security and laundering. In addition in the car market this has also coincided with a cash rich population spike and demographic of the Boomers seeking alternative investments for the excess cash and a desire to own classic cars.

It most definitely is a speculative bubble and it will most definitely burst. And as you say, rising rates is likely to be the catalyst. Firstly because it will make non yielding assets less attractive but the real squeeze will be when the speculative assets bought on debt get forced into auction and crash the market.

Once rates spike to the level that the debt can't be paid or the lenders want more margin than the owner has then their cars will be seized from the storage depots around Europe and the U.S. and start flooding the market.

What is different this time and why the boom has been so much larger is due to many cars being the basis of specialist structured debt products and as with all such products when doubts creep in regarding the underlying asset values then margins are increased and there will be defaulters. And this is a market that will go very illiquid, very quickly when sentiment rolls.

The only question is when. Well, the U.S. will probably raise rates this year. The UK is likely and the EU will be half way through their money printing. But the real point at which assets will rebase is when inflation starts needing to be controlled by random not pre planned rate hikes and that is when the debt defaulters will hit all the over inflated markets.

[DonkeyApple]

And that is, of course, not withstanding the blue sky event that can trigger the burst before the known event of excessive rate increases beyond the elastic capability of the debtors.

[derin100]

Welshbeef said:

derin100 said:

This is very true and often not highlighted by the dealers with a vested interest in telling you what a great "investment" buying your "classic" car is going to be.

For example, I think I sold my CSL about 4 years ago for £28K. In fact, it took an age to sell! What's it REALLY worth now? (Not what some dealers are hyping it to be worth) Maybe £40K?

Now that car was costing circa £2K per annum just to own without even turning a wheel by the time one considers Insurance, Road Tax and a service...initially I even had it under BMW Warranty at nearly a £Grand/per year.

So, shave those annual costs off the notional value today and suddenly that "investment" doesn't look quite so astute coupled with the fact that one has two Swords of Damocles constantly hanging over one. These are in the forms of either something going bang on the car requiring an expensive repair and thus wiping out any gains or the risk of the whole market going bang on you (or that particular model peaking and the hype moving on to something else), leaving you high and dry!

Though if you are running it as your only form of transport then some of those £2k per year costs you'd be incurring anyway with another vehicle.

That said using it as a daily driver will wipe out any value it has - imagine a 300k mile F40 how much less than a 4km vehicle is it worth? Id say firstly it's no longer a collectors car so your looking at a different set of buyers clearly at a lower value due to less demand. I'm sure the owner who would do 300k miles would really enjoy his F40 though the seats are bloody cramped and knees right to the dash etc .



The other point is very long term ownership means preventative servicing and part replacement which most have never done on modern cars IE
Engine mounts
Steering wheel
Reupholstered interior
Detailed engine bay
New brake pipes
Brake servo
Gearbox oil change
OEM parts only - wonder if it's worth buying a car with lots of pattern parts then as they wear change back to OEM thus adding value?
Exhaust OEM on say M3's are thousands
New bushes
New drop links
New springs
New shocks
New underseal
New door seals
Wheel bearings
Radiators
Condensers
Etc.
where a normal car you may elect to just run it worn out/not fix air con properly not change engine mountings not properly repaint and scratches


How much is a full engine bay detail? £700?

Ah! And there's another "cost of ownership" that is often overlooked and that I forgot to mention!

Say, for example, you had as I did an E46 CSL sitting in the garage and at the time it was worth £28K because that's what I sold it for. You own it outright. However, at the same time you have some other debt or debts...something like a mortgage on a property, for example? And that mortgage has an interest rate of about 5%? By shaving £28K off that debt one will be paying less interest back to the bank or mortgage company?

So, 5% of £28K is £1400? Over 4 years that would have been £5600?

So without even driving the CSL at all and assuming nothing went wrong with it at all requiring extra expenditure, I would have had to keep it for these past 4 years and for it now to worth about £13.5-ish K more (i.e £41.5K) to have seen it show even a penny of "profit on my investment"? Worth the risk?

Classic cars, at this lower end of the spectrum are, IMHO, not an "investment" at all for the average Joe who is lured or seduced by the term "investment" into buying a solitary car, at an already artificially inflated price. However, they have been and at the moment(!) continue to be a good way for certain well-known dealers to make a lot of money by hyping them to Average Joe.

On the one hand it's playing to our inherent laziness i.e. "Oooh! I can make a load of money by just buying this M3 CSL, planting it in my garage and watching my beanstalk grow with a great big pot of gold at the top for doing absolutely nothing!"

And at the same time it gives false sanction to the Man Maths games that we all play i.e. "Oooh! Y'know, I'd really like to have an E46 CSL because all the motoring Journos constantly tell me how good they are...never mind the fact that I haven't got either the roads or if I'm honest the ability to drive them like they do in the videos. Now I can justify buying one because it's a cast-iron INVESTMENT! In fact, it would be foolish and make poor financial sense NOT to buy one! I'm Bi-winning!"

And we all know how straight-thinking the guy who that's quoted from appears to be?



There maybe the odd Average Joe who gets lucky and can get in and out quickly enough at just the right time who may make a few quid. However, I suspect and fear that there will be an awful lot more Joes who will make at best nothing...or at worst be left high and dry holding the baby when the bubble bursts (or their particular car simply goes out of fashion because the dealers have moved on and aren't hyping them anymore).

And we know how that's happened spectacularly in the past!

[For cars at the very high-end (vintage Ferraris have been quoted above) the story and reasons for them being bought and sold are entirely different.]

[derin100]

DonkeyApple said:

Western equity markets have been rampant as has prime housing in the West and classic cars as billions of overseas dollars seeks security and laundering. In addition in the car market this has also coincided with a cash rich population spike and demographic of the Boomers seeking alternative investments for the excess cash and a desire to own classic cars.

#

+1

This is most definitely what I was alluding to in my last sentence above!

[s m]

This "bubble"/rise in some old car prices/whatever you want to term it, appears to have been bursting for the last 10 years according to internet experts

[derin100]

s m said:

This "bubble"/rise in some old car prices/whatever you want to term it, appears to have been bursting for the last 10 years according to internet experts

Really? For example, were CSLs (both E9s and E46s) going up 10 years ago? Even 5 years ago? That certainly wasn't my experience. It took me nearly 2 years to sell my E46 CSL for £28K.

I restored a Pagoda only 4-5 years ago. Upon completion the offer on that only about 2years ago was £35K. Since then £100K and even over £150K isn't uncommon to see?

http://www.bmwclassics.co.uk/gallery/index.php?spg...

I don't know for sure about other Marques like air-cooled Porsche 911s...but I'm pretty sure one would have struggled to spend £50K on any 993 5-10 years ago? The were either flat-lined or just slowly creeping downwards.

If there really is no recent apparent surge in prices (for whatever reasons) it makes one wonder why somebody decided to bring it up and why so many people are responding to this thread?

Personally, I don't remember discussions about a classic car bubble bursting 10 years ago.

[Rincewind209]

The big price hikes is fairly recent, last 3 years or so and is getting very silly. A 28k car does not become twice as good or rare in a couple of years so pricing over 50k is just someone chancing it and probably someone desperately needing to get in and not miss out on the buying opportunity. Some people will have seriously overspent when the current surge is over. If their lucky they will have a good car but many won't even have that consolation.

[mikey k]

Axionknight said:

mikey k said:

S2000's were always going to get collectable
There are less of them left in the UK than there are Aston Martins in the UK!

That's probably because tons of 'em were crashed and written off, mine included!

that is certainly helping!
Thats why I got back in to one last year as a "keeper"

[9mm]

s m said:

This "bubble"/rise in some old car prices/whatever you want to term it, appears to have been bursting for the last 10 years according to internet experts

No, it has really taken off in the last two or three years.

[Jagmanv12]

The bubble in the 80's was fuelled by borrowed money. Today the banks require your house, wife, children, left arm, right arm, etc as security for a loan. Whilst some people may be suckered into this situation I would think that the majority are a bit wiser.

It is money that people have and are looking to reap a better return than the paltry interest rate the banks offer. When interest rates rise to say 5% or more then some of the classic/investment cars may come on the market. A few will probably come on the market due to upgrading property, deaths and personal circumstances but I don't see this as a flood of cars being sold.

[DonkeyApple]

Jagmanv12 said:

The bubble in the 80's was fuelled by borrowed money. Today the banks require your house, wife, children, left arm, right arm, etc as security for a loan. Whilst some people may be suckered into this situation I would think that the majority are a bit wiser.

It is money that people have and are looking to reap a better return than the paltry interest rate the banks offer. When interest rates rise to say 5% or more then some of the classic/investment cars may come on the market. A few will probably come on the market due to upgrading property, deaths and personal circumstances but I don't see this as a flood of cars being sold.

At the bottom end it will be some people with spare cash indulging a whim for a better return.

However, the level of debt today absolutely dwarfs anything from 30 years ago by factors. This current bubble is all debt fuelled. Cars are now almost vanilla collateral in structured tax products with an LTV of 75% in the key deals. Just to give you an idea? Most retail home purchases are done at around that same LTV mark!!!!

It doesn't even have to be debt related to the car either. When rates rise 200bp then resi debt is likely to increase by more. There will be more than enough people who suddenly need to raise capital to pay down or finance property debt. The car will be among the first thing to go. Supply will rise as demand falls and asset prices will rebase.

Likewise, all true crashes need a catalyst event. The sheer number of fakes being peddled at the top of this market means that it only takes a small blip and a couple of failed auctions for sobriety to hit the market and people start worrying once again that what they are holding is a replica not a classic car and the rout will begin.

But don't go thinking this isn't a debt fueled bubble. It is all about the debt and it is massive beyond comprehension which is why everyone knows that when the auto correcting of inflation kicks in in the West we are going to have funding liabilities that large numbers won't be able to meet. And this is all assuming that some event like an economical collapse in China doesn't trigger a crash beforehand etc.

[9mm]

DonkeyApple said:

Jagmanv12 said:

The bubble in the 80's was fuelled by borrowed money. Today the banks require your house, wife, children, left arm, right arm, etc as security for a loan. Whilst some people may be suckered into this situation I would think that the majority are a bit wiser.

It is money that people have and are looking to reap a better return than the paltry interest rate the banks offer. When interest rates rise to say 5% or more then some of the classic/investment cars may come on the market. A few will probably come on the market due to upgrading property, deaths and personal circumstances but I don't see this as a flood of cars being sold.

At the bottom end it will be some people with spare cash indulging a whim for a better return.

However, the level of debt today absolutely dwarfs anything from 30 years ago by factors. This current bubble is all debt fuelled. Cars are now almost vanilla collateral in structured tax products with an LTV of 75% in the key deals. Just to give you an idea? Most retail home purchases are done at around that same LTV mark!!!!

It doesn't even have to be debt related to the car either. When rates rise 200bp then resi debt is likely to increase by more. There will be more than enough people who suddenly need to raise capital to pay down or finance property debt. The car will be among the first thing to go. Supply will rise as demand falls and asset prices will rebase.

Likewise, all true crashes need a catalyst event. The sheer number of fakes being peddled at the top of this market means that it only takes a small blip and a couple of failed auctions for sobriety to hit the market and people start worrying once again that what they are holding is a replica not a classic car and the rout will begin.

But don't go thinking this isn't a debt fueled bubble. It is all about the debt and it is massive beyond comprehension which is why everyone knows that when the auto correcting of inflation kicks in in the West we are going to have funding liabilities that large numbers won't be able to meet. And this is all assuming that some event like an economical collapse in China doesn't trigger a crash beforehand etc.

I agree with this. There's also the little matter (same as with home ownership) of too few wanting to admit they might be holding a financial timebomb.

[PAUL500]

The only ones talking of a bubble about to burst are the ones who missed the boat. There will be a plateau sooner rather than later but no rapid descent, there is no reason for one, people are buying them for nostalgia reasons and have the cash spare, if things settle or even retract a bit they won't be that bothered as they own a rare car they always wanted anyway.

[9mm]

PAUL500 said:

The only ones talking of a bubble about to burst are the ones who missed the boat. There will be a plateau sooner rather than later but no rapid descent, there is no reason for one, people are buying them for nostalgia reasons and have the cash spare, if things settle or even retract a bit they won't be that bothered as they own a rare car they always wanted anyway.

Quoted for posterity.

[GreigM]

PAUL500 said:

There will be a plateau sooner rather than later but no rapid descent, there is no reason for one, people are buying them for nostalgia reasons and have the cash spare, if things settle or even retract a bit they won't be that bothered as they own a rare car they always wanted anyway.

I generally agree with the plateau theory - although the growing chasm between LHD and RHD prices for the same car would have me worried with certain more common or new cars.

However I don't believe that the people who have the cars currently will hang on to them when the deflation comes - the genuine enthusiasts who have bought their dream car are few and far between in this market and there are a lot of cars that will be offloaded. I know several people sitting on multiple 964s, 993s and the like and at some point they want to turn those back into cash.

[s m]

derin100 said:

s m said:

This "bubble"/rise in some old car prices/whatever you want to term it, appears to have been bursting for the last 10 years according to internet experts

Really? For example, were CSLs (both E9s and E46s) going up 10 years ago? Even 5 years ago? That certainly wasn't my experience. It took me nearly 2 years to sell my E46 CSL for £28K.

I restored a Pagoda only 4-5 years ago. Upon completion the offer on that only about 2years ago was £35K. Since then £100K and even over £150K isn't uncommon to see?

http://www.bmwclassics.co.uk/gallery/index.php?spg...

I don't know for sure about other Marques like air-cooled Porsche 911s...but I'm pretty sure one would have struggled to spend £50K on any 993 5-10 years ago? The were either flat-lined or just slowly creeping downwards.

If there really is no recent apparent surge in prices (for whatever reasons) it makes one wonder why somebody decided to bring it up and why so many people are responding to this thread?

Personally, I don't remember discussions about a classic car bubble bursting 10 years ago.

I'll have to differ on that one I'm afraid.

Wasn't the same cars being talked about 10 years ago in every case ( an E46 CSL was still not due for an MOT in 2005 and certainly wasn't an instant classic as you are obviously aware) - however, certain cars had gone up dramatically even back in 2005 and there were naysayers telling us people were going to get burned, certainly on old Fords for example. Low mileage RS500s were going for more than the original price and people were saying it was madness and wouldn't last, RS1800s going for 5 figure sums - buyers would lose out as prices dropped in the near future etc. it was all being fuelled by rising house prices etc and so on.





Obviously different cars come into the spotlight at different times and as said above, in the last few years things have rocketed with some cars more than others

As to whether this is a recurring conversation, even on here, I didn't have to look too far back to find this from 4 years ago forecasting a year at most of prices rising



Some of the forums only seem to go back to Jan 2011 but I can remember similar threads from 2005/2006

Edited by s m on Sunday 10th May 16:43

[DonkeyApple]

PAUL500 said:

The only ones talking of a bubble about to burst are the ones who missed the boat. There will be a plateau sooner rather than later but no rapid descent, there is no reason for one, people are buying them for nostalgia reasons and have the cash spare, if things settle or even retract a bit they won't be that bothered as they own a rare car they always wanted anyway.

This has never happened in the history of man to date though. As such, I'd prefer to bet that it will act exactly the same as every single asset bubble since the dawn of time.

Something will trigger a rebasing of values it is only really about discussing what might the trigger be and the more difficult task of guessing when it might happen. Most bubbles are burst by random events that no one predicted.