Speculation in the Exotic and Classic market.

Thought about putting this over in GRM, but thought it would be better over here in Classics, and with most people using the ‘latest topics’ button most will see it here anyway.

Tom Spangler told me that Clarkson, May and Hammond were on the Adam Carolla podcast last week to talk about ‘The Grand Tour’ so I DL’d it. As an aside am I the only one here who doesn’t’ find him funny in the least? Anyway, one of the things that came up was the crazy rise in classic and exotic car prices. I think it was Clarkson that mentioned part of what’s driving the market at least in the UK is the lack of capital gains tax on flipping cars. In his usual over the top way he was talking about buying a new $1mil exotic and flipping it a week later for $2mil. Well why not do it then? Obviously outside of a few rare instances it’s not going like that, but there has been a constant increase for a few years now that seemed to start around the bottom of the ‘Great Recession’ as those with money put it in cars. This has been drifting down market for a while, just look at the insanity in the rear engine Porsche market. What was a nice $10K car 5-6 years ago is now a $25K+ car.

Now the UK loves to close loopholes so I bet it won’t be too long before people will be on the hook for capital gains on car sales over at least a certain threshold (say £100K – pure guess pulled from where the sun don’t shine) Do people think that’s driving it here as well? In the upper reaches the car market is an international business, if your dropping millions on a car It’s location doesn’t’ matter, just it’s provenance and in most cases originality. Do people think that eventually the speculation side of things will collapse like it did in the early 90’s where some cars latterly lost 80% of their value in a couple of months. I’m thinking of the Alfa SZ Zagato for instance where they were a limited production vehicle and people were on the waiting list. They were being flipped for multiple times their MSRP as soon as people picked them up, then suddenly they were next to worthless. I may be wrong, but I think I remember one selling for something nuts like £1 million to Japan then they were back to MSRP within a year

If the top of the market collapses, will the lower end come down again. For instance 2.7 RS 911 have gone from $100K to over $750K in 10 years. 964 RS America’s have gone from $30K to $150K. G50 3.2 Carrera’s have from $20K to $50K. The uber 911 the 959 has gone from $200K to over $1.5 million. IF the uber cars drop say 50% what will be the effect on the lower cars. Will they drop the same % or will they drop further? When real-estate drops it seems the very top and the very bottom drop the furthest. Will the same happen with a correction in the car market?

In reply to Adrian_Thompson:

I think the bottom will fall out of collector-cars with the economy, and sadly we're about due for another dip. My guess is the economy will start its downward trend within the next year. Let's hope I'm wrong, or at least that it's only a minor dip if it does occur.

You need to get the right car with the right options. A friend of mine invested in a couple of manual transmission Ferrari's. I haven't seen them, so I'm not sure what they are. I'm sure they're 80's or 90's vintage. Low miles and almost never driven. I just want a picture of me in them for my bucket list.

He also has a Z3 M Roadster with 8,000 mile son it. Not sure how that one will appreciate.

With interest rates low, some people are using speculation to turn a profit on their investments.

Most of the guys in the multimillionaire club built their fortunes through years of conducting good business deals. At its core, good business is about buying low and selling high -- ie, recognizing undervalued assets, then reselling them to the markets that are willing to pay the most for those assets.

To these guys, the collector car market is just another flavor of the business they've already been really successful at. So it's a no-brainer that they are making deals to get their hands on limited edition cars then flip to the next guy who is willing to pay the markup because he 'has to have' the hot thing of the moment. The fact that this is driving collector car market values up even higher is a net benefit to them, as it means they can make even more on their next sale.

nderwater wrote: Most of the guys in the multimillionaire club built their fortunes through years of conducting good business deals. At its core, good business is about buying low and selling high -- ie, recognizing undervalued assets, then reselling them to the markets that are willing to pay the most for those assets.

Precisely, but when do undervalued assets move into the bubble territory? It's happened before and it'll happen again. the thing is when and how big will the correction be, and how far down market will it come?

petegossett wrote: In reply to Adrian_Thompson: I think the bottom will fall out of collector-cars with the economy, and sadly we're about due for another dip. My guess is the economy will start its downward trend within the next year. Let's hope I'm wrong, or at least that it's only a minor dip if it does occur.

Could be, but I'm not so sure. back in 08 and 09 low level exotics and sports cars dropped like a stone. Porsche sales dropped, many lower collector cars dropped. But this top end didn't really notice. But demand for the hyper cars barely slowed down and all through that time 959's, F40's, GTO's (Ferrari's) etc kept going up through that time.

Now, back in the late 80's and early 90's the global economic downturn was no where near as severe as 08/09, but the classic/collector/exotic market crashed far far harder than it did in 08. Things like the XJ220, EB110 sales were devastated and they were the hyper cars of the day.

Clarkson was referring mostly to the top end of the collector market. There is an unprecedented amount of money floating around these days, with lots of new wealth coming out of Asia and the Middle East. These guys are anxious to show it of, and impressive car collections are an easy way to do that. Even of the global economy starts to falter, these guys will still have really deep pockets, so the top of the end of the market will probably to continue to see the crazy speculation that it has today.

But those guys aren't interested in things like 50's Buicks or pre-war brass cars. The big volume in the collector car market is hobby collections, and is absolutely tied to the overall economy. If you read the auction reports you can see that the downward trajectory in that market is already under way.

In reply to underwater:

Yup, but to follow up on your example, I don't want a model A or a 50's Buick. I would want G50 3.2 Carrera or a Series 1.5 E type or an E30 M3. Ten years ago two out of three of those were easily affordable, but I had other life priorities.

These days not only are they all out of my personal affordability zone, they are now all to the point where their value proposition is, to me, upside down. To me there are now other (possibly undervalued?) cars that given the money I would get instead of those.

As in all things, once something passes it's value point, you're in a speculation bubble and it will eventually burst.

The point of this is a) do people other than me think we're into bubble territory? b) What if anything will fall first and furthest, the top, middle or bottom of the market? and c) If there's another downturn will the middle and bottom fall out while the top stays strong?

There is no right or wrong answer until history shows us, it's all just fun talk for now.

In reply to Adrian_Thompson:

Good point on the top-end stuff. Honestly, those cars have always been so far beyond my dreams/means that I've not followed their trends.

I seem to recall the brass-era cars took a hit around '07-'08. Did they recover and follow the trend upward?

I don't know about the high end classic or exotic market, was never lucky enough to play there.

As for the common classic market. I don't think there's been a "crazy rise" but more of a rebound to pre recession values with a slight increase just because the cars are now 10 years older. During the recession a lot of regular people unloaded affordable classic cars for economic reasons and then there were so many on the market the last few years of the recession it tanked the values because supply was greater than demand. Smart buyers took advantage and bought.

I bought and sold cars for many many years. About every 5 years I'd keep a cool one and continue buying and selling. I stopped buying in 09 and started selling a few years ago, now it's time to sell another. I'm going to put up a 67 RS SS convertible Camaro and a 86 widebody Carrera 3.2 cabrio. Although different in many ways they're both red convertibles with black tops and black interiors that really only seat 2 and are probably similar in value. Whichever sells first goes.

Mid level stuff is already dropping even some of the 911 prices are starting to harden up a bit. I need to start dumping a few of the 50's things i have in storage.

I personally cannot wait for the brass era and prewar stuff to start dropping, it is my bag of cats. How many people in there 30's actually want them or can maintain them now.

In reply to wearymicrobe:

Wishing no one ill will or financial ruin it hope so. A mid year air cooled 911 is a great car for $15. A nice SC would be great for an SC. I'd be all over a late Carrera fior $25, but not double that which is where they are close to for good ones now.

Personally?

RWD, non-turbo BMWs - E36, E46, 1-series.

Any of the Ms will be preferable.

I imagine the 1M and M2 will never lose value (both appear to have gained value).

Adrian_Thompson wrote: In reply to wearymicrobe: Wishing no one ill will or financial ruin it hope so. A mid year air cooled 911 is a great car for $15. A nice SC would be great for an SC. I'd be all over a late Carrera fior $25, but not double that which is where they are close to for good ones now.

Its not the economy ,in that era its that the owners are dying. I am the youngest by 30+ years in both the Vintage Cadillac club and the region Thunderbird club. Nice people but average age is in the 70-80's. I am still helping guys with the V8's every now and then as very few people want to touch them and they are not economical to restore, just keep them on the road. V12/16 different category but eventual nobody will remember them as well.

I swear some of those guys are going to start dropping cars off that they cannot restore in my driveway if they are on the way out. They would rather I have them then they get sold to someone who cannot care for them. I am already making small parts here and there for some of the rarer stuff and I feel like it is just me doing stock restorations and not restomods.

I think the mid market stuff is most at risk. Something like a big Healey, E-Type, 60s Vette, etc. Expensive toys with a changing market. Its shifting to 90s stuff like the NSX, Supra, etc. The lower end stuff will be fine. There will be a market for $5k MG B, $10k TR8, $3k Rx-7, etc for quite a while yet.

In reply to wearymicrobe:

That's very sad, and yet wonderful at the same time. Generally, vehicles are tools/toys for me - I rarely desire to own a vehicle that would not see frequent use - but cars from the 1920's and early 30's are like artwork. Sure, if I had one I'd drive it occasionally, but it would be nice to have around just for décor too.

I'm 30 and would love to have a brass Era car. I suspect I will be able to buy one for very little $$$ in the next 10 years.

petegossett wrote: In reply to wearymicrobe: That's very sad, and yet wonderful at the same time. Generally, vehicles are tools/toys for me - I rarely desire to own a vehicle that would not see frequent use - but cars from the 1920's and early 30's are like artwork. Sure, if I had one I'd drive it occasionally, but it would be nice to have around just for décor too.

Yeah different strokes I guess, we sound similar in that respect to the 20's stuff. I have the viper for track and a few classics for general use its not like I am hurting for cars.

But I would keep a Marmon or a V16 Cadillac Cadillac just to look at and be the caretaker. Maybe use six seven times a year at most, same with a good touring Packard. I have been getting closer and closer to getting a full classic. I have passed correctly in the last year on two that have dipped a good bit in price since then but for the right car in the right condition I would move some of my more pedestrian stuff around. Even if I never make money on it.

There is another angle with the car and other high end collections (art, jewelry, ect). Extremely low interest loans against them from high end auction houses. They call them shadow loans and allow people to move money without regulation. Interesting stuff.

http://www.bloomberg.com/news/articles/2016-07-28/art-of-shadow-banking-how-an-auction-house-got-into-the-picture

There are some guys who do this for a living and aren't bad at it. Andy wrote a "car to watch" profile on the 550 Maranello a number of years ago in CMS. He proved to be right as those cars have pretty much doubled in value since that article was printed.

It's hard to predict where the market will go. We Gen-Xers will probably keep the muscle car market fairly strong for at least another 25 years or so as the Baby Boomers start liquidating their collections. After us? Hard to say... Millennials are kind of like the WW2 generation that grew up during the Great Depression and were left with a sense of frugal cautiousness (as much as my grand parents were worth, my grand mother still grew and canned her own veggies). After watching their parents be decimated by poor financial decisions and excesses prior to The Great Recession, they seem to be somewhat more cautious and less concerned with material possessions. Weary's description of the classic Caddy membership isn't far off from my local LBC club. At 46 I'm not the youngest, but I think I can count on one hand the members who are younger than me.

former520 wrote: There is another angle with the car and other high end collections (art, jewelry, ect). Extremely low interest loans against them from high end auction houses. They call them shadow loans and allow people to move money without regulation. Interesting stuff. http://www.bloomberg.com/news/articles/2016-07-28/art-of-shadow-banking-how-an-auction-house-got-into-the-picture

It's not as easy as that but yes certain people use cars as transport for cash across borders in a legal and not exactly taxable way. Its not all that uncommon on the lower end as well, the A.Brotherhood and its subsidiaries was doing it to wash money on the west coast not to long ago.

Honestly the watch, high end stone and art market has all but decimated using cars though. You can put 8 figures worth of watches in a shoebox and not have to maintain or insure them. You can wear them across borders without issue and there is a pretty decent market on the used side.

He also has a Z3 M Roadster with 8,000 mile son it. Not sure how that one will appreciate.

Not so well. The collectible Z3 is definitely the coupe, AKA 'Clownshoe', which has been going up lately. Similarly, in the second model of Z4M, from 2006-2008, the coupe is also the more highly valued (and scarcer) model.

I'm enjoying reading this thread. Inflation only increases and supply only dwindles so I have a hard time seeing prices really go down. Of course, car culture is dying so demand might be decreasing too.

I'm still worried about 90s Japanese cars becoming out of reach before I can get my hands on one. Z32s and RX-7s have increased about $10k in just 5 years. Supras and NSXs rocketed up before that.

And there are far fewer examples of these cars than Ferraris and Porsches of the same era. There are tons of nice old Porsches to choose from because they were all owned by 45 year old business executives, maintained at the dealership, and kept in nice garages. Not so with Japanese sports cars.

I remember dreaming on Autotrader when I was a freshman in college (7 years ago) and there were tons of FD RX-7s for sale with low mileage, often by the original owner. Probably 25 or so good ones in the US on the market, and all priced around 12-15k. Now those cars are 25-28k, and they are extremely rare. They all end up ruined by kids trying to live out their F&F dreams.

I absolutely agree -- I just saw a pristine RX-7 R1 on the road yesterday. It was like seeing a unicorn.

nderwater wrote: I absolutely agree -- I just saw a pristine RX-7 R1 on the road yesterday. It was like seeing a unicorn.

Pristine is one thing. Stock is another.

A stock FD3S RX7? Now that is a unicorn I've spent years looking for, and have yet to find.