Article

Home > Article > Article


Insider's Guide To: Buying At Auction

The possibility of financial enhancement is all part of the pleasure of classic car ownership. Historically, this sector has returned impressive performance over the long term, but within that there have been periods of slump, most notably the crash of the late 1980s which did not begin to correct until half way through the 1990s.

What makes this sector all the more fascinating is that it doesn’t move as a mass, but is highly segmented. Certain marques and models have outperformed others; some marques possess more volatility than others; while others may be regarded as historic long-term structural underperformers. In these cases, there’s an intriguing judgement call to make as to whether they are “ripe for rotation.”

This is a market that has texture, tone, taste, fashion and rotational forces, whereby undervalued, underappreciated models may in the longer term offer more up-side potential – or better downside protection – than today’s market darlings.

What to buy is a personal decision, but the statistical tools of www.ClassicCarPrice.com will help you hone in on the comparative performance within market sectors and models.

The attraction of classics

Aside from the pleasure of ownership and engagement with the hobby, classic cars appeal on several levels:
* Classic cars are a tangible asset, a great reassurance in a world of economic uncertainty.
* Supply is inelastic, although there is a certain amount of stretch to accommodate later era exotic models such as the McLaren F1.
* 
Fixed supply and a growing number of high-net-worth individuals promotes demand.
*
Once a car has achieved classic status no model has ever become “unclassic.”
*
Classic cars have global reach, unlike other assets classes such as wine and art, which are culturally more specific
*
Capital gains: in tax jurisdictions such as the UK there are no capital gains to pay on individually held classic cars
*
The investment-grade classic car market is broadly non-correlative with other asset classes and investment fields. This provides an element of hedge which is beneficial for asset allocation and portfolio diversification

Disadvantages

Illiquidity: classic cars cannot generally be traded with the immediacy of stocks and shares, for example; it can take a while for a car to find its market.
Ownership costs: unlike paintings and stamps, classic cars require on-going maintenance and up-keep; a restoration begins to age the moment it is completed.

What to buy

Buy something you want to own and are interested in. Distinguish between an appreciating asset and an investment. A car bought at the lower end of the market may appreciate as an asset, but on-going ownership costs will outstrip the return in value gains.

The classic car market is highly segmented with some marque values more volatile than others. Past performance is not a guarantee of strong future growth. Better opportunities may lie with under-appreciated marques and models that are “ripe for rotation.” Strong growth in one segment can lead to a shift of focus as rarefied and exotic models move beyond reach of some collectors. This can stimulate interest in other “lesser” models and marques which appear to offer great value by comparison.

Condition

Generally buy the best you can afford, as restoration costs, particularly at the lower end, can outstrip the value of the asset. The exception here is barn-finds, which have latterly attracted heightened market interest. Part of the reason for this, in the case of more valuable marques and models, is that these immobile artefacts consume few resources apart from storage, whereas a restored car has on-going maintenance and ownership costs. Therefore, based on the assumption of a rising market, a well-bought barn-find can provide better returns in terms of costs-to-asset-value. Moreover, as time passes and more cars are restored, new-to-market barn-finds become a scarcer resource. However on the other hand, rising values add impetus to the search for as-yet undiscovered barn-finds.

Provenance, originality, an unclouded history, comprehensive documentation, competition success (if applicable) are an integral part of the asset, which at least enhances saleability. Beware of where rarity meets obscurity. Because something is merely rare that does not necessarily make it desirable, if there is no critical mass of ownership interest

Buy with a long-term view. Since 1980, as measured by independent research house The Historic Automobile Group (www.historicautogroup.com) the market for high-end investment-grade collector cars has returned a compound annual growth rate in excess of 13%. Yet within that there was a dramatic slump in the late 1980s. In 2009 the market also experienced a significant but far less dramatic downturn.

 

By Al Suttie

Buying Advice View More

Made with by 6B