2015: The Bubble Bursts!

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355Chris355

Original Poster:

134 posts

112 months

Sunday 1st February 2015
quotequote all
My turn to prophesize that the end is nigh.

As a Pher you'll have no doubt heard all the arguments as to why this is different to the 90's and in many ways it is. There's no doubt the market was undervalued at the turn of the century but the current trajectory has the fragrant aroma of Tulips. Unlike the 90's interest rates are not going to spike up to 15% but this boom will be brought down by different factors.

These are the two key factors that will end the boom in the UK:

(1) Exchange Rates

A European Holiday will be much cheaper this year thanks to the strong £ (weak €) following the announcement of QE and uncertainty in Greece. Before 2007 the exchange rate was between €1.4 and €1.5. It almost reached parity in 2009 thanks to the financial crisis and the UK's exposure to the banking industry. It's taken until January 2015 for us to surpass €1.30.

The steep drop in the exchange rate during the recession meant that buying a new Italian car from 2009 onwards became much more expensive. Think of the price differential between a Ferrari 458 and a F430. In addition, production was lower due to the global recession. The result is that the prices of used supercars has been very strong.

As the € weakens, the above effects are reversed. The price disparity between UK rhd cars and European lhd cars is now very very wide. I'd encourage you to visit http://www.autoscout24.com and see for yourself. It makes the prices advertised by UK Dealers for lhd cars look rather 'cheeky' (that's me being polite).

Given the political landscape in Europe I can see the pound gaining more ground against the euro... €1.4 if you want an exact prediction (assuming no ones silly enough to vote for Red Ed).

The Pound also took a beating from the Australian Dollar during the recession. As a result, the export market to Australia has thrived. Thanks to the commodities slump this is now reversing. After reaching a nadir in 2013 of 1.45 AUD to the pound, sterling has strengthened to 1.95 AUD to the pound. I doubt there will be much interest from that side of the globe anymore.

(2) New Car Registrations

Once again the recession hit the new car market hard. The result is that less used cars came onto the market and residuals remained high. This trend is now being reversed following 34 consecutive months of increasing new car sales.
Reaching a 10 year high in 2014 with almost 2.5million cars sold. Please link from SMMT below:
http://http://www.smmt.co.uk/2015/01/uk-new-car-re...

This trend is driven by people who delayed purchasing new cars during the recession, PPI windfalls and amazingly cheap PCP deals.

The result is that there will be an ever increasing supply of used cars onto the market. This effect will start this year and continue as more 2 and 3year deals come to an end. This increased supply will depress used car values and provide alternatives to the overvalued classic car market.

Conclusion

These two factors alone are enough to stop the exponential growth in prices. As prices moderate, 'investors' will question why they're spending money servicing and storing a depreciating asset. The smart investors will already be quietly leaving the room. The average car enthusiast will benefit from being able to buy and enjoy the car of there dreams.

Many Thanks for reading my post. I look fwd to your responses.

Disclaimer: The opinions I've expressed do not constitute investment advice. Independent advice should be sought were appropriate.

Edited by 355Chris355 on Sunday 1st February 20:28


Edited by 355Chris355 on Sunday 1st February 21:52

anonymous-user

53 months

Sunday 1st February 2015
quotequote all
Will read this next year & check !

Happy Jim

964 posts

238 months

Sunday 1st February 2015
quotequote all
Thanks for that, I was struggling to sleep, all good nowZzzzzzzzz

Jim

v8250

2,724 posts

210 months

Sunday 1st February 2015
quotequote all
355Chris355 said:
My turn to prophesize that the end is nigh.

As prices moderate, 'investors' will question why they're spending money servicing and storing a depreciating asset. The smart investors will already be quietly leaving the room. The average car enthusiast will benefit from being able to buy and enjoy the car of there dreams.
Edited by 355Chris355 on Sunday 1st February 20:27
This is already being seen in some quarters. There are a lot of cars out there that are simply not selling/have been on/off the market for some 6+ months. I have heard that some Auction houses are getting ready to batten down the hatches in order to ride any such downward storm.

But more importantly, is the near certainty that Greece will default on their EU debt, the recent revaluation of the CHF, the ongoing validity of the Euro, the ongoing market difficulties in Asia, our very own £1.486 trillion, or 80% of our entire national output, and above all...the $18 trillion debt in the U.S. There are interesting times ahead...particularly for those poor souls who've ploughed their pension pots into classic cars. Oh, and don't forget mortgage interest rates...

PS The truer national debt, factoring in all liabilities including state and public sector pensions, is closer to £4.8 trillion, some £78,000 for every person in the UK...but, of course, the Govt would never want the general public to be readily aware of this.

Mr2Mike

20,143 posts

254 months

Sunday 1st February 2015
quotequote all
2015: The PH post quality nosedives!

This needs to be moved to the "Random economic predictions made by a lurker" sub-forum.

sone

4,585 posts

237 months

Sunday 1st February 2015
quotequote all
So not so much a bursting bubble but a slow puncture?

355Chris355

Original Poster:

134 posts

112 months

Sunday 1st February 2015
quotequote all
sone said:
So not so much a bursting bubble but a slow puncture?
Agreed but doesn't sound as sexy as a post title

355Chris355

Original Poster:

134 posts

112 months

Tuesday 10th March 2015
quotequote all
1.4 EURO to the £! As predicted.

Result European manufacturers will be able to maintain record car sales in the UK by reducing the price and offering incentives. Coupled with the rise in supply of used cars coming onto the market will inevitably lead to a fall in prices.

In addition, purchasing a used LHD Ferrari from Europe is now upto 50% cheaper than the inflated RHD prices quoted at UK dealers.

Edited by 355Chris355 on Tuesday 10th March 08:55


Edited by 355Chris355 on Tuesday 10th March 09:13

Robert Elise

956 posts

144 months

Tuesday 10th March 2015
quotequote all
355Chris355 said:
sone said:
So not so much a bursting bubble but a slow puncture?
Agreed but doesn't sound as sexy as a post title
"the market" is an irrational beast that feeds off emotion. it's only a slow puncture until it bursts with a bang.
last crash was correctly forecast by many in 2006, even earlier. Those articulate opinions were ignored until a catalyst provoked mayhem, including people queuing in the streets outside NR. Cue analysts, politicians and commentators talking of "unforeseen" circumstances.
The public don't really care though.


Asterix

24,438 posts

227 months

Tuesday 10th March 2015
quotequote all
now is a perfect time to book next years skiing holiday before they jack up the prices.

Robert Elise

956 posts

144 months

Tuesday 10th March 2015
quotequote all
Asterix said:
now is a perfect time to book next years skiing holiday before they jack up the prices.
Russia looks cheap right now.

Asterix

24,438 posts

227 months

Tuesday 10th March 2015
quotequote all
Robert Elise said:
Asterix said:
now is a perfect time to book next years skiing holiday before they jack up the prices.
Russia looks cheap right now.
Indeed hehe

Seriously though, with the Euro having tanked, there are huge savings to be made if you can book a chalet, for example, in Austria, Italy or France right now. They will bang up the prices as soon as this season finishes.

Switzerland, which was expensive to start with, is even more so now.

SirSquidalot

4,039 posts

164 months

Tuesday 10th March 2015
quotequote all
Can i predict another bubble burst? The price of special edition 911's. They cannot have the daft markup they have gained much longer, who the fudge would buy this for nearly double its original value?

http://www.pistonheads.com/classifieds/used-cars/p...


thatdude

2,654 posts

126 months

Tuesday 10th March 2015
quotequote all
I'm not sure it's cheaper for me to replace my exisiting car


But I did purchase a house this year (well, had an offer accepted), so I got that going for me which is nice

Devil2575

13,400 posts

187 months

Tuesday 10th March 2015
quotequote all
I'm wondering what boom the OP is refering too?

braddo

10,399 posts

187 months

Tuesday 10th March 2015
quotequote all
Why would the sales of new cars have anything whatsoever to do with the values of old cars?

Of course the recent price rises are not sustainable and they will level off (many have done), but that is nothing like a bubble bursting.

Old cars have been rising partly because interest rates have been so low and partly because new cars are becoming more and more synthetic, remote, homogenous and ugly.
1 - interest rates are not going up significantly any time soon.
2 - new cars are going to continue to diverge from older cars in terms of driving experience, feedback, drivetrain and general looks/feel. Emissions legislation, EU pedestrian impact regs and NCAP obsession are some of the factors that have combined to mean that we really have seen the end of an era for beautiful, engaging, internal combustion cars.


Lastly, there will always be many people in the UK who don't want a LHD car; especially if the car is bought as a status symbol - if it's LHD it just tells people you couldn't afford the RHD version! The hassle and snob factor will keep a premium on RHD cars in the UK.

Jimbo0912

72 posts

171 months

Tuesday 10th March 2015
quotequote all
I've talked about this before but there are a number of events that are very similar to the late 80's classic car/Ferrari bubble. What preceded the collapse in values that are very similar to today?

1) Auction companies popping up everywhere in order to exploit increasing prices and resulting commissions.
2) Prices inflated by significant percentages in periods measured in weeks, months and not years. Amari are currently advertising a Lamborghini Miura S. They bought it for less than £600k, first advertised 6 months ago at £895k, 2 months ago they increased the price to £995k and now it's been increased by further £300k to £1.25m: http://www.amarisupercars.com/detail?vid=88787 - Watch for further price increases on this one. There are an increasing number of examples of this happening.
3) The same identical cars being sold again and again and again, sometimes in a matter of months.
4) Broadsheet and even tabloid press articles touting classic cars as 'investments' - if this isn't a warning sign, then I don't know what is!
5) Italian cars particularly Ferraris increasing massively in value - Compound annual rates of return of over 20% in the past 4-5 years for most Ferraris. For example, a good Daytona cost less than £200k 3 years ago, are now being routinely advertised and sold for £700k +. Some F40s are being sold at over £1m despite the fact that 1,300+ were produced! Madness!
6) Cars sold to speculators and not to collectors. A recent BBC documentary on Joe Macari showed them trying to sell a 365 GTC/4 to a speculator who had no interest in it beyond it being an investment vehicle. The potential buyer had absolutely no interest in how it looked or drove but intended to store it for a year before flipping it.

I'd be astonished if this continues for more than a couple of years.

swisstoni

16,850 posts

278 months

Tuesday 10th March 2015
quotequote all
If the OP had posted in the Classic Car forum then it may have made more sense.

Claudia Skies

1,098 posts

115 months

Tuesday 10th March 2015
quotequote all
Devil2575 said:
I'm wondering what boom the OP is refering too?
^^^ This.

It appears that perceptions in UK are drifting further and further from reality. The modest improvement in UK economy is easy to explain,
  • Government policies encouraging slackers back into work, and
  • Wages held low by a huge influx of cheap East European workers.

Mermaid

21,492 posts

170 months

Tuesday 10th March 2015
quotequote all
Jimbo0912 said:
I've talked about this before but there are a number of events that are very similar to the late 80's classic car/Ferrari bubble. What preceded the collapse in values that are very similar to today?

1) Auction companies popping up everywhere in order to exploit increasing prices and resulting commissions.
2) Prices inflated by significant percentages in periods measured in weeks, months and not years. Amari are currently advertising a Lamborghini Miura S. They bought it for less than £600k, first advertised 6 months ago at £895k, 2 months ago they increased the price to £995k and now it's been increased by further £300k to £1.25m: http://www.amarisupercars.com/detail?vid=88787 - Watch for further price increases on this one. There are an increasing number of examples of this happening.
3) The same identical cars being sold again and again and again, sometimes in a matter of months.
4) Broadsheet and even tabloid press articles touting classic cars as 'investments' - if this isn't a warning sign, then I don't know what is!
5) Italian cars particularly Ferraris increasing massively in value - Compound annual rates of return of over 20% in the past 4-5 years for most Ferraris. For example, a good Daytona cost less than £200k 3 years ago, are now being routinely advertised and sold for £700k +. Some F40s are being sold at over £1m despite the fact that 1,300+ were produced! Madness!
6) Cars sold to speculators and not to collectors. A recent BBC documentary on Joe Macari showed them trying to sell a 365 GTC/4 to a speculator who had no interest in it beyond it being an investment vehicle. The potential buyer had absolutely no interest in how it looked or drove but intended to store it for a year before flipping it.

I'd be astonished if this continues for more than a couple of years.
All good stuff, but this time it is different wink
& markets do remain irrational for far longer than all the clever people can imagine.