Is The Silly Season Coming To An End
Discussion
Fokker said:
An e36 M3 GT would be nice...
I once owned one. What a lovely car that was.My other half drove it flat out for 2 days at Spa. Hilarious following her. She's such a little squirt that it looked as though it was driving itself! Wish that we still had it..
Along with the 996 GT3mk1 and the 968CS.
Sometimes I can be such a twerp
Fool Rance....
Edited by Steve Rance on Tuesday 9th February 20:45
There's an awful lot of short-term memory, and a fair amount of naivete on display here.
Do all the "values can only go up" brigade seriously think that it can be soley attributed to some sort of mass realisation of qualities inherent in these cars that somehow wasn't apparent just a few years ago?
We are in an asset bubble fueled by cheap money, the lack of traditional investable assets offering decent returns and the herd confidence currently believing the only way is up...and inciting others to "buy now, as they will never be so cheap and you will miss the boat" (which should itself be a warning sign).
I've worked in the city through at least 3 economic cycles now. Each one saw substantial falls in the price of such cars. If I could predict these events with certainty I would be considerably richer than I currently am, but it should be obvious to anyone that there's a large amount of stress in the financial system at the current time. Should events transpire to seriously affect confidence, the driving qualities of these cars will not be adequate protection to stop people selling today when they know it will be cheaper tomorrow.
Do all the "values can only go up" brigade seriously think that it can be soley attributed to some sort of mass realisation of qualities inherent in these cars that somehow wasn't apparent just a few years ago?
We are in an asset bubble fueled by cheap money, the lack of traditional investable assets offering decent returns and the herd confidence currently believing the only way is up...and inciting others to "buy now, as they will never be so cheap and you will miss the boat" (which should itself be a warning sign).
I've worked in the city through at least 3 economic cycles now. Each one saw substantial falls in the price of such cars. If I could predict these events with certainty I would be considerably richer than I currently am, but it should be obvious to anyone that there's a large amount of stress in the financial system at the current time. Should events transpire to seriously affect confidence, the driving qualities of these cars will not be adequate protection to stop people selling today when they know it will be cheaper tomorrow.
Hedgeman said:
There's an awful lot of short-term memory, and a fair amount of naivete on display here.
Do all the "values can only go up" brigade seriously think that it can be soley attributed to some sort of mass realisation of qualities inherent in these cars that somehow wasn't apparent just a few years ago?
We are in an asset bubble fueled by cheap money, the lack of traditional investable assets offering decent returns and the herd confidence currently believing the only way is up...and inciting others to "buy now, as they will never be so cheap and you will miss the boat" (which should itself be a warning sign).
I've worked in the city through at least 3 economic cycles now. Each one saw substantial falls in the price of such cars. If I could predict these events with certainty I would be considerably richer than I currently am, but it should be obvious to anyone that there's a large amount of stress in the financial system at the current time. Should events transpire to seriously affect confidence, the driving qualities of these cars will not be adequate protection to stop people selling today when they know it will be cheaper tomorrow.
The question really is whether people who have bought at recent highs or in recent years have done so as a place to park spare cash in an enjoyable asset or with finance as an investment... its the latter category that will be heading to the exit in any material proce correction - but even then, the amount of pain in the system unless values (say) halve will not necessarily be frightful - as people will simply be giving up a portion of the paper gains theyve made, which shouldnt unduly stress them.Do all the "values can only go up" brigade seriously think that it can be soley attributed to some sort of mass realisation of qualities inherent in these cars that somehow wasn't apparent just a few years ago?
We are in an asset bubble fueled by cheap money, the lack of traditional investable assets offering decent returns and the herd confidence currently believing the only way is up...and inciting others to "buy now, as they will never be so cheap and you will miss the boat" (which should itself be a warning sign).
I've worked in the city through at least 3 economic cycles now. Each one saw substantial falls in the price of such cars. If I could predict these events with certainty I would be considerably richer than I currently am, but it should be obvious to anyone that there's a large amount of stress in the financial system at the current time. Should events transpire to seriously affect confidence, the driving qualities of these cars will not be adequate protection to stop people selling today when they know it will be cheaper tomorrow.
Cash buyers should simply be able to sit on the asset and await market stability and eventual uptick (as for instance I did, buying pre crash in 07, seeing the car halve in value through the crisis, and then seeing it recover to a higher level than I originally paid) - ie if you dont need to sell, then its no real issue, if you do, then your forced sale is someone elses quick win !
ZeroH said:
The question really is whether people who have bought at recent highs or in recent years have done so as a place to park spare cash in an enjoyable asset or with finance as an investment... its the latter category that will be heading to the exit in any material proce correction - but even then, the amount of pain in the system unless values (say) halve will not necessarily be frightful - as people will simply be giving up a portion of the paper gains theyve made, which shouldnt unduly stress them.
Cash buyers should simply be able to sit on the asset and await market stability and eventual uptick (as for instance I did, buying pre crash in 07, seeing the car halve in value through the crisis, and then seeing it recover to a higher level than I originally paid) - ie if you dont need to sell, then its no real issue, if you do, then your forced sale is someone elses quick win !
Without knowing the ownership demographic and extent of any possible financial shock it's hard to say what might happen. Car values don't move in isolation, and are of course affected by confidence in future earnings, value of other assets and ability to service other (possibly more important debts). Even those who may be able to ride things out may still choose to sell with a view to buy back later.Cash buyers should simply be able to sit on the asset and await market stability and eventual uptick (as for instance I did, buying pre crash in 07, seeing the car halve in value through the crisis, and then seeing it recover to a higher level than I originally paid) - ie if you dont need to sell, then its no real issue, if you do, then your forced sale is someone elses quick win !
Values are already off around 20% this year in the auctions in US and France. That''s a widely shared view, Not everything - some less, and some more. Average stuff not selling, and Porsches in particular are struggling as there are so many non-unique models up for sale at rocket-ship asking prices.
If values revert to ' normal' they will drop by 50%+ on some stuff, and more likely they will drop more than that, IMO as an over correction,
I've seen it before - asset values don't climb that fast (without a structural reason), and then deflate gently, they go up fast and come down fast, There is no yield on a car, only costs, and as people become squeezed elsewhere and see capital gains disappear, it's a discretionary luxury they'll have to or want to get rid of.
As they see values falling they'll all try to exit at the same time, accelerating things, I know for a fact that some financé companies have recently been offering 100% list orice finance on things like the RS, with the buyer paying the premium. Also equity release on collections etc.
I don't know how much of the market is leveraged, but even the stuff that isn't will be from free cash generated by low interest rates or high profits on other things which are further up the list of priorities to protect,or from QE generated paper profits on commodities etc which have disappeared faster than your average Hypercar,
I bought a Countach 2.5 years ago, and paid around 25-30% of where values peaked last year. The car is a good one, and a rare version. It had been for sale for a year and no-one wanted it. I did not expect to lose money on it, but had no expectation of a paper increase of 300% in 12 months...if it was an investment purchase I would have been out last summer (toyed with it, but maybe will never find another as good)
What has changed in the economic outlook since 2013? It has deteriorated! So, would I be surprised if values fall back to what was normal only 27 months ago? Not at all.
I'm not bothered, because I was happy to buy it as a car, not an investment, and use it as intended, if I had bought it as a one way ticket to future riches, I'd now be bailing out as fast as possible. It will be nice if its gone up when I eventually sell it, many years and miles from now, but I have accepted it's going to fall fast over the next few months,
I did sell one mass produced car last week, at about 40% more than I paid for it, as there are thousands of them kicking around and there is no justification for where values have gone, I know I'll be able to find another one and there's no way I'd pay today's asking prices if I didn't have one already, so got out.
How many long in the tooth specialist car dealers are buying stock with their own money now? Not many - just the big chains with 'buyers' who have to spend money and feed a machine as part of their job. The bubble is not about to burst, it has burst.
People get upset that you're 'talking things down', but pretty sure none of us have that much influence over the global economy, it's just how I see it,
to be honest, I'll be quite happy when cars go back to being cars for a bit. That's what's normal, not the 'new normal' (that bit never turns out to be true...)
If values revert to ' normal' they will drop by 50%+ on some stuff, and more likely they will drop more than that, IMO as an over correction,
I've seen it before - asset values don't climb that fast (without a structural reason), and then deflate gently, they go up fast and come down fast, There is no yield on a car, only costs, and as people become squeezed elsewhere and see capital gains disappear, it's a discretionary luxury they'll have to or want to get rid of.
As they see values falling they'll all try to exit at the same time, accelerating things, I know for a fact that some financé companies have recently been offering 100% list orice finance on things like the RS, with the buyer paying the premium. Also equity release on collections etc.
I don't know how much of the market is leveraged, but even the stuff that isn't will be from free cash generated by low interest rates or high profits on other things which are further up the list of priorities to protect,or from QE generated paper profits on commodities etc which have disappeared faster than your average Hypercar,
I bought a Countach 2.5 years ago, and paid around 25-30% of where values peaked last year. The car is a good one, and a rare version. It had been for sale for a year and no-one wanted it. I did not expect to lose money on it, but had no expectation of a paper increase of 300% in 12 months...if it was an investment purchase I would have been out last summer (toyed with it, but maybe will never find another as good)
What has changed in the economic outlook since 2013? It has deteriorated! So, would I be surprised if values fall back to what was normal only 27 months ago? Not at all.
I'm not bothered, because I was happy to buy it as a car, not an investment, and use it as intended, if I had bought it as a one way ticket to future riches, I'd now be bailing out as fast as possible. It will be nice if its gone up when I eventually sell it, many years and miles from now, but I have accepted it's going to fall fast over the next few months,
I did sell one mass produced car last week, at about 40% more than I paid for it, as there are thousands of them kicking around and there is no justification for where values have gone, I know I'll be able to find another one and there's no way I'd pay today's asking prices if I didn't have one already, so got out.
How many long in the tooth specialist car dealers are buying stock with their own money now? Not many - just the big chains with 'buyers' who have to spend money and feed a machine as part of their job. The bubble is not about to burst, it has burst.
People get upset that you're 'talking things down', but pretty sure none of us have that much influence over the global economy, it's just how I see it,
to be honest, I'll be quite happy when cars go back to being cars for a bit. That's what's normal, not the 'new normal' (that bit never turns out to be true...)
One of the reasons people sell expensive cars is because they are either heavily leveraged or they have a desperate need for each, I suppose there is also a herd mentality too.
Who knows how different prices will be but the fact remains at some point, relatively soon I imagine they will become harder to sell and easier to buy (with cash) and depending on the swing prices will come down accordingly.
Once the expensive stuff goes to normal auction houses then its a great time to get a good car.
A 991 GT3 is not destined to rise forever, the build numbers are high and its not as coveted as some of the old stuff.
When the market goes sideways, and people far more prescient than I am can predict that I will maybe be able to buy one for 80/90k...
Might take three years but you can quote me for posterity, it will happen.
Who knows how different prices will be but the fact remains at some point, relatively soon I imagine they will become harder to sell and easier to buy (with cash) and depending on the swing prices will come down accordingly.
Once the expensive stuff goes to normal auction houses then its a great time to get a good car.
A 991 GT3 is not destined to rise forever, the build numbers are high and its not as coveted as some of the old stuff.
When the market goes sideways, and people far more prescient than I am can predict that I will maybe be able to buy one for 80/90k...
Might take three years but you can quote me for posterity, it will happen.
Typically, Chaps who want to buy argue that the market is or will fall and those who are already owners argue the opposite. Of course economic factors are very important but what is interesting is that modern vehicle design ionly offers completely digital experience. If a driver wants any degree of involvement he will look to an analogue vehicle.
In all previous 'crashes' the factors that led to them were ecionomic. The digital/analogue element is an external factor which is unique to marker.
From a personal point of view, there is no car currently produced that can replicate the driving experience of say a cooking 964C2 or a 996GT3 so that is where I will put my money. I am confident that I am not alone in this point of view.
In all previous 'crashes' the factors that led to them were ecionomic. The digital/analogue element is an external factor which is unique to marker.
From a personal point of view, there is no car currently produced that can replicate the driving experience of say a cooking 964C2 or a 996GT3 so that is where I will put my money. I am confident that I am not alone in this point of view.
Steve Rance said:
Typically, Chaps who want to buy argue that the market is or will fall and those who are already owners argue the opposite. Of course economic factors are very important but what is interesting is that modern vehicle design ionly offers completely digital experience. If a driver wants any degree of involvement he will look to an analogue vehicle.
In all previous 'crashes' the factors that led to them were ecionomic. The digital/analogue element is an external factor which is unique to marker.
From a personal point of view, there is no car currently produced that can replicate the driving experience of say a cooking 964C2 or a 996GT3 so that is where I will put my money. I am confident that I am not alone in this point of view.
Interesting external factor but still 997 GT3 and especially RS prices both gen 1 and 2 absolutely flying despite being laden with active suspension and TC. The 997 is a digital experience compared to say a 996 GT3 , RS, or GT2. I believe even when you switch the tc off it is still always on to some extent or another in a 997? V.impressive how for example a gen 2 997 GT3 RS sells for £192k within days of being advertised - JZM do seem to sell their stock like hotcakes which speaks volumes about the quality of the cars they sell.In all previous 'crashes' the factors that led to them were ecionomic. The digital/analogue element is an external factor which is unique to marker.
From a personal point of view, there is no car currently produced that can replicate the driving experience of say a cooking 964C2 or a 996GT3 so that is where I will put my money. I am confident that I am not alone in this point of view.
ZeroH said:
The question really is whether people who have bought at recent highs or in recent years have done so as a place to park spare cash in an enjoyable asset or with finance as an investment... Cash buyers should simply be able to sit on the asset
A lot of people of a certain age are tapping into pension pots to treat themselves to the car they'd always desired. Younger people like myself may have saved or cashing-in investments (the latter in my case) and paid cash. TBH, even those who have financed their purchases may well have done so with a view to keeping and enjoying rather than 'investing'.The £10k odd I've spent on my car (in case you're wondering: engine out to fix oil leak, gearbox overhaul etc. etc.) in the first 6 months alone means you'd need some weapons-grade man-maths to try and argue any sort of case for financial probity. (Thankfully, I have a wife who understands and doesn't think I should sell because it's costing a fortune but rather I should keep it and enjoy it because it's now so beautifully sorted.)
It would be a shame for the car's value to plummet, but it was always intended as a keeper - it's always easier to justify running costs on a higher value motor and, workshops need to charge their £x /hr whether your car is worth £2k or £200k. I'm pretty sure others out there are in the same boat.
Digga said:
lot of people of a certain age are tapping into pension pots to treat themselves to the car they'd always desired. Younger people like myself may have saved or cashing-in investments (the latter in my case) and paid cash. TBH, even those who have financed their purchases may well have done so with a view to keeping and enjoying rather than 'investing'.
The £10k odd I've spent on my car (in case you're wondering: engine out to fix oil leak, gearbox overhaul etc. etc.) in the first 6 months alone means you'd need some weapons-grade man-maths to try and argue any sort of case for financial probity. (Thankfully, I have a wife who understands and doesn't think I should sell because it's costing a fortune but rather I should keep it and enjoy it because it's now so beautifully sorted.)
It would be a shame for the car's value to plummet, but it was always intended as a keeper - it's always easier to justify running costs on a higher value motor and, workshops need to charge their £x /hr whether your car is worth £2k or £200k. I'm pretty sure others out there are in the same boat.
A lot of people keep telling themselves (and everyone else) just this. But I don't believe it. The £10k odd I've spent on my car (in case you're wondering: engine out to fix oil leak, gearbox overhaul etc. etc.) in the first 6 months alone means you'd need some weapons-grade man-maths to try and argue any sort of case for financial probity. (Thankfully, I have a wife who understands and doesn't think I should sell because it's costing a fortune but rather I should keep it and enjoy it because it's now so beautifully sorted.)
It would be a shame for the car's value to plummet, but it was always intended as a keeper - it's always easier to justify running costs on a higher value motor and, workshops need to charge their £x /hr whether your car is worth £2k or £200k. I'm pretty sure others out there are in the same boat.
Almost every discussion where someone bought a car (even vanilla 996 c4, 997c2 etc etc) is riddled with comments like "that will be a rare car in years to come" "these are very sought after cars" "this is the last of xxx, the best of this, the last analogue of that" etc etc etc etc
Not much has happened in the car landscape over the last couple of years. 964 was just as raw then as now, 996 turbos are just like they were then etc etc etc
I bet 90% of buyers these days have a firm eye on values, and 'investment potential' is a major factor when deciding on model. But on here it's "a keeper" or "i don't care about the value"
I would not spend money I couldn't afford to lose on a hobby car. Specially not now.
Hedgeman said:
ZeroH said:
The question really is whether people who have bought at recent highs or in recent years have done so as a place to park spare cash in an enjoyable asset or with finance as an investment... its the latter category that will be heading to the exit in any material proce correction - but even then, the amount of pain in the system unless values (say) halve will not necessarily be frightful - as people will simply be giving up a portion of the paper gains theyve made, which shouldnt unduly stress them.
Cash buyers should simply be able to sit on the asset and await market stability and eventual uptick (as for instance I did, buying pre crash in 07, seeing the car halve in value through the crisis, and then seeing it recover to a higher level than I originally paid) - ie if you dont need to sell, then its no real issue, if you do, then your forced sale is someone elses quick win !
Without knowing the ownership demographic and extent of any possible financial shock it's hard to say what might happen. Car values don't move in isolation, and are of course affected by confidence in future earnings, value of other assets and ability to service other (possibly more important debts). Even those who may be able to ride things out may still choose to sell with a view to buy back later.Cash buyers should simply be able to sit on the asset and await market stability and eventual uptick (as for instance I did, buying pre crash in 07, seeing the car halve in value through the crisis, and then seeing it recover to a higher level than I originally paid) - ie if you dont need to sell, then its no real issue, if you do, then your forced sale is someone elses quick win !
But when the correction comes, as it inevitably will, it's those that have "invested" in the more prosaic metal that has been dragged up off the back of the rises in their more illustrious brethren, that will have to stomach the losses. And it's this segment that I'd bet has financed their purchase of an "investment" car.
I'd place my 575 coupe, 996 C4S/C2S, 996 Turbos, Ferrari 456s in that bracket. Decent enough cars, but investments?...nope. For decades I bought (used) 911s as depreciation-neutral toys....and I still think that's the way one should approach these. Don't get sucked into the hype!...
footsoldier said:
to be honest, I'll be quite happy when cars go back to being cars for a bit. That's what's normal, not the 'new normal' (that bit never turns out to be true...)
I feel that way as well. I miss the time when Ferraris were "affordable". I bought a 41k mile F355 Spider in 2010 for £35K from a respected dealer, drove the tits off it for about 13k miles in 3 years inc track events, then sold it for about £28K. Thought that seemed quite fair. Same 40k mile car now would be, what, £70K? And you just know there's a v good chance it's been clocked to preserve value. My next Fcar was a 550 Maranello - 28K miles, bought in mint condition for £53.5K in 2012 from a dealer, sold for £75K privately just over a year ago with another 9k miles on it or so. Barking mad. I like the money I made on it, it allowed to pick up my GT3 and scratch an itch. But given I was paying an inflated price for the GT3 as well, in reality it made no difference. For serial car owner enthusiast, car value increases are like increasing house prices - they make you feel wealthy, but in reality as you need the money made to fund the inflated price of the next car, you only actually make anything if you cash out.Now, the 355, 550 and GT3 are great cars don't get me wrong, they've always been great cars, they always will be great cars, and it was privilege to own them. But what happens when prices rise like this is that they become self justifying - "it wouldn't cost this much if it wasn't this good" type logic. But they've all got significant flaws/drawbacks that they've always had, nothing has changed, just our biased perceptions.
The 355 costs a bomb to run properly and produces 350bhp on a good day if you're lucky, which you can't really meter out anyway at low revs because unless you've had a service in the last 10 miles you have a sticky throttle. While we're at it pray that it's cold as it will stop everything plastic inside going sticky and the leather shrinking off the trim.
The 550 is a great GT car, but cornering it feels like piloting an oil tanker, but luckily to help sort it all out is a very expensive steering rack made of chocolate. And good luck with heel & toeing during sporty driving because no-one I've come across has yet been able to do it in a standard car.
997 GT3 is mechanically solid but feels constantly chomping at the bit on the road because you can't really use its glorious engine properly and needs to be tracked to fully enjoy it, which ironically most owners will never do. Suspension is liveable on the road but let's not pretend it's comfy, it was sold as a track day enthusiasts car after all. And if you do track it properly the suspension is too soft and the PASM interferes too much if you really know what you're doing
Now, I'm not picking on these cars because I've sold them, I'm just being honest and if you like I can pick apart my current cars as well. It's just now the above foibles are hidden by the aura of investment potential and collect-ability that tips a few petrolheads over the edge to pay more increasing demand, followed by the non-enthusiast types who suddenly consider the car because prices have started rising so it must make financial sense, increasing demand even more. Problem is, none of these cars are particularly rare, there are more than enough to satisfy the petrol head fraternity who have always liked them anyway, so as soon as the non-enthusiasts find somewhere "better" to spend their money, everything will change. Frankly as a petrol head, I'd rather prices came crashing down a bit. Even if it meant I lost £20K more in depreciation on my current normal car fleet, it's be worth it as there would be so much other stuff I could buy that is now just not justifiable in price.
Edited by Mario149 on Wednesday 10th February 10:16
Some really interesting posts here and good reading. I, personally would like to be able to afford a nice 430 Scud or a 997 GT3 RS and if prices come down then thats a possibility for me.
On the other hand I have made some good dosh on the rise of the market so I suppose its about playing the game and not getting completely bent over and losing big chunks. I found the following interesing.
Working in the classic car market means that you meet a great deal of people with a great deal of varying theories on the recent meteoric rise in classic car prices. Well, taking those into account, here is my take on the rise and rise of classic car prices
You may or may not remember the stock market crash in 1987 when the DOW imploded. Shortly after this, investors were looking for the next big thing and classic cars appeared to fit the bill. Prices were rising, they were a tangible asset and they weren’t subject to Capital Gains tax (along with racehorses, watches and vintage wines).
All sounds good right? Well, not quite, with demand outstripping supply and prices rocketing, people were borrowing heavily to get in on the game and when interests rates peaked in 1990, Johnny lender had to have his money back as it was too expensive to borrow any longer.
With this, everything went up for sale and the market was turned on its head. Supply outstripped demand and £750,000 Ferrari’s went down to £100,000 almost overnight.
With fingers burned and lessons learned fast forward to the late noughties as the country is beginning to stagger back to its feet post-recession. With interest rates low to encourage borrowing, the upshot is that Mr Jones’ life savings are no longer putting on much weight just languishing in the bank – but we’ll come back to Mr Jones shortly.
They say that the five most dangerous words in finance are; “It’ll be different this time” – but looking at the situation with ruthless logic, it appears that it will. The key difference this time is that the market is being built on ‘owned’ cash and not borrowed money. This is to say that the people buying the cars this time around (while some are speculators) are using their savings or liquid assets to make the purchase and this is an important factor. With the removal of a third party lender, the risk is reduced and the asset is at the behest of the owner and no-one else.
To paint the picture, in 1990 Mr Smith had to sell his Ferrari 275GTB/4 for a substantial loss because the interest rates rose and made the borrowed equity in the car too expensive to sustain the investment.
In 2015 if our old friend Mr Jones wants to sell his Aston Martin DB4 that he bought with his savings then he will do so. The key difference here though is that Mr Jones bought the car with ‘owned’ money so he is in no hurry to sell and will choose the right time depending on demand/supply/market value to sell. No third party – no rush. This way, the market can self-regulate.
Interest rates staying low is one factor in the market but another part of the meteoric surge is down to what I call the ‘table cloth’ theory.
Picture if you will a giant round table covered in a crisp white cloth. Every marque has its own table but for the purposes of illustration, we’ll use the Ferrari table. At the centre of the table is the most expensive Ferrari – a hallowed 250GTO which sold in 2014 for a shade under £23m. Slightly further out are the 250GT SWB’s then 275’s, 288’s, 330’s, 550’s, 308’s etc. This is to say that closer towards the edge of the table you get, the less valuable/desirable the cars are. However, as you lift the car in the centre, the table cloth effect means that all the other cars rise eventually. This is not to say that people only buy 308GTBs for reflected glory but it’s certainly a factor in values.
The super wealthy often buy centre table cars to add to private collections so to them, investment tends not be the overriding factor although lack of depreciation certainly helps. If you could afford a Picasso, you probably wouldn’t buy it because you need to make a few quid on it.
As nothing is ever that simple there is a third factor which contributes; say it quietly but Capital Gains tax (or lack of) is also a large draw on these cars. A classic car is effectively a used car and a private individual won’t pay tax on any profit made at the time of sale. As prices rise many owners are now looking at profit margins which dwarf the original purchase price of the car. In 2005 a friend was offered a Ferrari 330GT for £39,000. He turned it down citing that it was overpriced. The same car sold in 2015 for £612,000. Hindsight is a wonderful thing but it does show the upward parabola of the market.
So what happens when interest rates go back up and people want to put their money back into the banks? Well, as I see it that would see the market slow but not crash. The odd borrowing investor may choose to sell up which will increase supply and therefore have a small effect on demand but not enough to instigate a full blown crash. Bad news unfortunately, but classic cars may never be affordable again.
In short, the market appears this time to be built on stone and not sand.
On the other hand I have made some good dosh on the rise of the market so I suppose its about playing the game and not getting completely bent over and losing big chunks. I found the following interesing.
Working in the classic car market means that you meet a great deal of people with a great deal of varying theories on the recent meteoric rise in classic car prices. Well, taking those into account, here is my take on the rise and rise of classic car prices
You may or may not remember the stock market crash in 1987 when the DOW imploded. Shortly after this, investors were looking for the next big thing and classic cars appeared to fit the bill. Prices were rising, they were a tangible asset and they weren’t subject to Capital Gains tax (along with racehorses, watches and vintage wines).
All sounds good right? Well, not quite, with demand outstripping supply and prices rocketing, people were borrowing heavily to get in on the game and when interests rates peaked in 1990, Johnny lender had to have his money back as it was too expensive to borrow any longer.
With this, everything went up for sale and the market was turned on its head. Supply outstripped demand and £750,000 Ferrari’s went down to £100,000 almost overnight.
With fingers burned and lessons learned fast forward to the late noughties as the country is beginning to stagger back to its feet post-recession. With interest rates low to encourage borrowing, the upshot is that Mr Jones’ life savings are no longer putting on much weight just languishing in the bank – but we’ll come back to Mr Jones shortly.
They say that the five most dangerous words in finance are; “It’ll be different this time” – but looking at the situation with ruthless logic, it appears that it will. The key difference this time is that the market is being built on ‘owned’ cash and not borrowed money. This is to say that the people buying the cars this time around (while some are speculators) are using their savings or liquid assets to make the purchase and this is an important factor. With the removal of a third party lender, the risk is reduced and the asset is at the behest of the owner and no-one else.
To paint the picture, in 1990 Mr Smith had to sell his Ferrari 275GTB/4 for a substantial loss because the interest rates rose and made the borrowed equity in the car too expensive to sustain the investment.
In 2015 if our old friend Mr Jones wants to sell his Aston Martin DB4 that he bought with his savings then he will do so. The key difference here though is that Mr Jones bought the car with ‘owned’ money so he is in no hurry to sell and will choose the right time depending on demand/supply/market value to sell. No third party – no rush. This way, the market can self-regulate.
Interest rates staying low is one factor in the market but another part of the meteoric surge is down to what I call the ‘table cloth’ theory.
Picture if you will a giant round table covered in a crisp white cloth. Every marque has its own table but for the purposes of illustration, we’ll use the Ferrari table. At the centre of the table is the most expensive Ferrari – a hallowed 250GTO which sold in 2014 for a shade under £23m. Slightly further out are the 250GT SWB’s then 275’s, 288’s, 330’s, 550’s, 308’s etc. This is to say that closer towards the edge of the table you get, the less valuable/desirable the cars are. However, as you lift the car in the centre, the table cloth effect means that all the other cars rise eventually. This is not to say that people only buy 308GTBs for reflected glory but it’s certainly a factor in values.
The super wealthy often buy centre table cars to add to private collections so to them, investment tends not be the overriding factor although lack of depreciation certainly helps. If you could afford a Picasso, you probably wouldn’t buy it because you need to make a few quid on it.
As nothing is ever that simple there is a third factor which contributes; say it quietly but Capital Gains tax (or lack of) is also a large draw on these cars. A classic car is effectively a used car and a private individual won’t pay tax on any profit made at the time of sale. As prices rise many owners are now looking at profit margins which dwarf the original purchase price of the car. In 2005 a friend was offered a Ferrari 330GT for £39,000. He turned it down citing that it was overpriced. The same car sold in 2015 for £612,000. Hindsight is a wonderful thing but it does show the upward parabola of the market.
So what happens when interest rates go back up and people want to put their money back into the banks? Well, as I see it that would see the market slow but not crash. The odd borrowing investor may choose to sell up which will increase supply and therefore have a small effect on demand but not enough to instigate a full blown crash. Bad news unfortunately, but classic cars may never be affordable again.
In short, the market appears this time to be built on stone and not sand.
Except that most people have a mortgage (99% of car buyer surely have a mortgage, many of them a sizeable one??) and are therefore leveraged.
If interest rates actually go up (though personally I don't think the will for a looong time), car values will get plummet. Definitely.
If interest rates actually go up (though personally I don't think the will for a looong time), car values will get plummet. Definitely.
Edited by fredt on Wednesday 10th February 12:53
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