Classic car ''bubble'' and china crisis/stock market jitters

[DegsyE39]

I did scour the classics forum for others who may be discussing the ramifications of this for values of all the E types, Ferrari testarossas, cossies et al..
Nothing came up and i am interested to hear opinions on the long term viability of such high prices in the classic car market.

It seems in other threads when parallels were drawn with the 1990's crash the consensus among owners/vested interests was that this time round things would be different due to new demand for classic cars coming from the BRICS and interest rates being so low for such a long period.
As i own nothing of real classic car caliber im on the fence about it all... Im only hoping if the top end slows down i might find a mice e39 m5 sub £10k.

So with china not looking so rosy and the FTSE and DOW JONES slightly tits up, Are we going to see a return to £15k 964's and E30 M3's? £30-40k E types and dinos?

Regards lads.

[Wadeski]

I think its the reverse if anything.

Wealthy people dont fancy the look of the stock market, don't like the returns low interest rates give savers, so throw money into alternative markets like cars....

[KarlMac]

I think the cream will continue to rise but we'll hopefully see dross/more average bits fall to sensible levels.

What we need is a new trendy thing to collect, like watches or antiques.

[gizlaroc]

KarlMac said:

I think the cream will continue to rise but we'll hopefully see dross/more average bits fall to sensible levels.

Oooh, I hope so, I can just about afford dross.

[swisstoni]

There are blue chip international classics that could be sold around the world and there are others that are more like local heroes.

I think the first category are untouchable but there's a bit of an element of Emperors New Clothes about the latter and I think these would be the first to show signs.

[DegsyE39]

Maybe i am slightly bitter due to missing the boat on the E36 M3, Z3M Breadvan,R32 GTR,NSX etc. need i depress myself further...

Was hoping for a more bearish view of the market in a way! Days of a certain £4000 E39 M5 Longtermer in one of the mags 'W4OOM' if i remember right seem long gone

[DegsyE39]

Agree about the blue chip stuff wholeheartedly,

Emperors new clothes £125000 Sierra Cossie rs500 springs to mind, Also feel a lot of the stuff in this category has a definite whiff of triggers broom about it.

[KarlMac]

gizlaroc said:

KarlMac said:

I think the cream will continue to rise but we'll hopefully see dross/more average bits fall to sensible levels.

Oooh, I hope so, I can just about afford dross.

Me too! I'm sick of seeing complete rust buckets with no history sold as 'investments' and 'future classics'

[wack]

Barn find must be the top hit on eBay now, movie special effects companies must be sold out of spray on dust

[George 500]

No correlation essentially- the Chinese stock market is dominated by local and not international investors, moreover a lot of investment is by individuals (and not ultra high net worths- so just average Joes in Shanghai/Beijing/Guangzhou etc)

Chinese themselves are a) unable to import cars over 10 yrs old b) relatively suspicious about the purchasing of antiques that they do not understand and cannot take possession of and c) essentially disinterested in cars (particularly old ones).

To suggest that the values of E-Types and Testarossas have been materially shifted by Chinese (or frankly any BRICs) is to overstate the case

Might it impact the very top end? Maybe but that seems to be all over the place at the moment anyway

[CRA1G]

DegsyE39 said:

Maybe i am slightly bitter due to missing the boat on the E36 M3, Z3M Breadvan

But remember there are those that won't sell regardless of the market,I have a small collection including both of the cars you mention,low mileage FSH the E36 M3 being a one owner car but I have no intention of selling I bought them to enjoy and use occasionally and I'm sure there's more people that have cars at this level that feel the same.?

[mon the fish]

CRA1G said:

But remember there are those that won't sell regardless of the market,I have a small collection including both of the cars you mention,low mileage FSH the E36 M3 being a one owner car but I have no intention of selling I bought them to enjoy and use occasionally and I'm sure there's more people that have cars at this level that feel the same.?

Yes - I get slightly annoyed by rising prices as it makes my insurance premium go up to cover the guaranteed value!

I too have no intention to sell, no matter the price - it's a car to me, not an investment.

When you look into the garage and see £££ instead of fun, it's a sad day

[swimd]

I think there will be a correction that will separate the wheat from the chaff.
Many of the base model cars were artificially pulled up by the "desirable" collectors models.

To speak in terms of 911, the '73 RS and S will likely keep their current value but the metallic brown '74 911T sportomatic US-import may not do so well.

[DonkeyApple]

George 500 said:

No correlation essentially- the Chinese stock market is dominated by local and not international investors, moreover a lot of investment is by individuals (and not ultra high net worths- so just average Joes in Shanghai/Beijing/Guangzhou etc)

Chinese themselves are a) unable to import cars over 10 yrs old b) relatively suspicious about the purchasing of antiques that they do not understand and cannot take possession of and c) essentially disinterested in cars (particularly old ones).

To suggest that the values of E-Types and Testarossas have been materially shifted by Chinese (or frankly any BRICs) is to overstate the case

Might it impact the very top end? Maybe but that seems to be all over the place at the moment anyway

The key is not the lol Chinese individual per se but the fact that Chinese economic growth has been what has fuelled the resource led economic boom that has coincided with the collapse of rates and created the asset boom in non yielding assets such as cars, art etc.

I have always stated these main arguments:

One, the classic car market is a bubble regardless of what anyone says. And as a bubble it will burst. Unlike domestic property there will be no regulator or State intervention to protect downside risk.

Two, the market will be become jittery once the West starts its upward rate cycle, which is arguably started. This will not only draw future cash away from this asset class but more importantly impact existing investments that are leveraged. Of which there are very many indeed. Up to 90% LTV and these structures products will shift out to 75% and then 50% very quickly if the market softens and there will be holders who can't pay the margin call and become forced sellers.

Three, the length and depth of the bubble has meant the market is absolutely riddled with fakes. This is a market with little regulation and the regulators that do exist such as the DVLA have not been enforcing their rules but in fact assisting in the breaching of them. Everyone at the top of the market knows which of the premium cars are fake and in a softening market where a few of them are being put into the auctions you will find that buyers suddenly start staying away. No one minds buying a fake when the boom is well under way but if the market is weakening then they won't. And on top of that you will get people who have made enough money starting to break ranks and publicly talking about non originality and naming cars.

And finally, no one knows what the actual trigger will transpire to be. It'll be a Black Swan type of event but it will happen. Maybe it'll knock just 20% off values or maybe it'll rout 80% off, again that isn't known.

What I would say is that if anyone monitors the secondhand trophy watch market then they will have noticed that in the last few months the market is flooded by Chinese sellers. The selling of the gold Rolex is the final sign of capitulation by the spivs. There are a lot of chaps in China desperately selling assets to raise cash. Their boom is over and the West is not reporting how bad it is over there.

But then that may mean a reallocation of true wealth back from the East to the Western economies such as the U.S. and GB which will stop our spivs and gamblers going into margin calls they can't manage.

However, I do think that our domestic classic car market at the low end has been taking stock over the summer and that many dealer prices for the basics like 911s etc have come off their top.

But over the last 4/5 years I have been saying in PH that the biggest risk to the classic car bubble will arise when US rates start rising and if Chinese economic growth shifts into rapid decline.

[larrylamb11]

Its never 'different this time'..... these market cycles repeat themselves endlessly and always have. Will there be another classic car 'bust'? yes... inevitably. Driven by supply and demand, as always.
Don't be fooled into believing that the current jitters are as a result of what is happening in China - the Chinese mkt turmoil is simply a useful news story to pin the turmoil upon. In reality we are well down the road to a full blown Kondratieff Winter. The writing has been on the wall in the mkts for months, the neon signs flashing brighter and brighter. Yes, China is a large contributory factor, but the problem remains the same as it did in 2007 - debt. The 'credit crunch' has still not been rationalised - all the Central Banks did was paper over the cracks by borrowing even more money - the level of gearing globally is astronomical and utterly unsustainable. We might be starting to see that unwind..... and if so, the events of the last weeks are mere trouser fluff in the market's deeeep pockets.
As just one of many examples of the ridiculous excesses we have climbed to, look at margin debt in America (i.e the amount of equities purchased with borrowed money) the level has never been higher - it is higher now than even the Tech Bubble - falling equity prices will inevitably lead to margin calls, which will be met by selling assets - increasing supply as demand tails away.... you see the problem. More examples? Commodity prices - the lowest level for decades - where is the demand from the purportedly rampant growing global economies? The examples are numerous, if you look. Sure you can counter all that by arguing that the economic data is all coming out as 'robust'.... but dig a little deeper and is it? How much has it cost the US Govt. to create every job? Are these anaemic growth figures really the best the world can post given ZERO interest rates?
Similarly do not be fooled by the headline interest rates at around zero % and assume that the party will just continue as a result - REAL rates have been climbing for some time, look at the yield on Junk Bonds, Corporate Debt and indeed Govt. Debt. These are clearly singposting the way and indicating higher rates and greater risk of defaults. All is very much 'not well' on the good ship Capitalism.... the smart sailors saw the icebergs some way off and had already retreated to the lifeboats... for the savvy 3rd class passengers, its time to reach for a life jacket, not return to the bar for another bottle of Veuve.

[George 500]

Interesting points DonkeyApple and have to say I agree with a number of your conclusions, certainly the fact that it is a rise in interest rates (which a wehole generation of us have never experienced).

In terms of a classic car bubble I think it is valid to point out that not all cars will fall off a cliff. Some (notably certain Ferraris/Lambos/Masers/Astons/Porsches) look crazy while others (a numebr of pre-war cars) have actually lost value in the last five years or so. It will be fascinating to see where the correction hits.

In terms of fakes I am not convinced this is that relevant at the Testarossa/E-Type end of the market

Turning to China I think watches are a little different. Having lived there until recently watches, wine, even art are normal things for Chinese to buy. Cars? They think it is bizarre to want an old car.

I also think it is important to point out that a stock market correction in a a society where people viw it as a large casino is not necessarily reflective of serious economic malaise. The economy is still growing at a rate that any Western economy would consider record breaking and the fundamentals are still very strong. I think we could be waiting a long time for a true china "crash"

[DonkeyApple]

George 500 said:

Interesting points DonkeyApple and have to say I agree with a number of your conclusions, certainly the fact that it is a rise in interest rates (which a wehole generation of us have never experienced).

In terms of a classic car bubble I think it is valid to point out that not all cars will fall off a cliff. Some (notably certain Ferraris/Lambos/Masers/Astons/Porsches) look crazy while others (a numebr of pre-war cars) have actually lost value in the last five years or so. It will be fascinating to see where the correction hits.

In terms of fakes I am not convinced this is that relevant at the Testarossa/E-Type end of the market

Turning to China I think watches are a little different. Having lived there until recently watches, wine, even art are normal things for Chinese to buy. Cars? They think it is bizarre to want an old car.

I also think it is important to point out that a stock market correction in a a society where people viw it as a large casino is not necessarily reflective of serious economic malaise. The economy is still growing at a rate that any Western economy would consider record breaking and the fundamentals are still very strong. I think we could be waiting a long time for a true china "crash"

The watch aspect isn't about people buying cars or anything. It's a very useful indicator as to how utterly fked an over leveraged economy is. Gents bling hitting the market is a very powerful indicator that the endebted have run out of the ability to finance their debt out of the income. Ie jobs gone.

In the past we used to chat to pawnbrokers for this info but today apps like Chrono24 give live data from all over the world. What it is suggesting these last few months is that there is strong mid/high wage job contraction in China, yet Western media hasn't picked up on this.

Also, re ETypes, there are bucket loads of fakes out there. There is at least one lightweight which cannot possibly be what the owner claims it to be and a fair few of the people who know what really happened to the original running gear are still alive.

If the DVLA does go down the route of enforcing its 8 point system then that could have a very serious impact on many cars.

Edited by DonkeyApple on Tuesday 25th August 14:55

[Slidingpillar]

DonkeyApple said:

If the DVLA does go down the route of enforcing its 8 point system then that could have a very serious impact on many cars.

Perhaps, but it's not really fit for the purpose as you could argue my vintage car gets 13 points, or anywhere between there and zero. Reason being, although much of it is original, all of it has been repaired at some time with new bits, and it does not really have axles anyway (independently sprung at front, and a three wheeler to boot).

[Justin Case]

larrylamb11 said:

I
- all the Central Banks did was paper over the cracks by borrowing even more money - the level of gearing globally is astronomical and utterly unsustainable....

....As just one of many examples of the ridiculous excesses we have climbed to, look at margin debt in America (i.e the amount of equities purchased with borrowed money) the level has never been higher - it is higher now than even the Tech Bubble - falling equity prices will inevitably lead to margin calls, which will be met by selling assets -

Interesting points; are those highly leveraged individuals the same people who are buying million dollar Ferrarrs or merely* $100k E-types? If so there is no reason to believe that the top end of the market is immune, and that the ripple effect will spread wider and wider. Unlike with the banks or housing, governments haven't the slightest interest in bailing people out, so I can see no reason for the bubble not to burst, regardless of what happens in the real eonomies of the world.

[DonkeyApple]

Slidingpillar said:

DonkeyApple said:

If the DVLA does go down the route of enforcing its 8 point system then that could have a very serious impact on many cars.

Perhaps, but it's not really fit for the purpose as you could argue my vintage car gets 13 points, or anywhere between there and zero. Reason being, although much of it is original, all of it has been repaired at some time with new bits, and it does not really have axles anyway (independently sprung at front, and a three wheeler to boot).

Of course but what we are meaning here by fakes are the cars with new chassis, new shells and a V5 that should never have been granted.

The classic car market has no regulator and is worth billions ergo it is bent as any such market always has been and always will be.

And just like all those rubbish gold products or fine wines that everyone bought in a frenzy when prices were climbing people always discover the hard way that when prices are falling no one wants to touch their junk.

The next few years of classic car speculation will continue, just like the last few, to be the most magnificent game of pass the parcel. Except, when the music finally stops no one wants to be unwrapping the enormous, god almighty dog pooh.