Classic car investments differ substantially from classic car collections

Any regular reader of this column will know that I have long advised collectors to buy a classic car because they want it, and to “leave the investing to the investors.”

If I were a politician, you might be tempted to say I’m “Flip-Flopping” because I’m tempted to change that advice. I prefer to think that I’m simply changing my mind in response to an economic environment that is affecting the classic car hobby/business in a way that I’ve not seen in my 30+ years of collecting cars. The classic car market has long been a realm inhabited by collectors, with a few investors thrown in whose interest just happened to be classic cars rather than stocks, or art, or gold.

But over the past five years, all of that has changed. Sophisticated investors noticed that the trajectory in the value of certain classic cars only went one way…up. They watched this trend continue for a few years, and they came to the realization that some of these trajectories far outperformed most of the conventional markets in which they were invested.

The key word in the preceding paragraph is “certain,” as in “certain classic cars.”

The investors, using tools that investors use, were able to identify some of these cars. But not all of them. As evidenced by auction sales prices, others are being discovered regularly. Not all classic cars have gone up in value during this time. In fact, some of the most iconic classic cars of all time, such as the ’57 Thunderbird, or ’57 Bel Air have actually come down in value.

It is said that everybody has 20-20 hindsight, so let’s look back at some of the cars that have enjoyed a surge in value over the last few years. Mercedes Benz 300SL, just about any Ferrari built prior to about 1964 (and a few after that), early Maseratis and Lamborghinis, L-88 and certain 427 powered Corvettes, and a host of other cars have seen their values increase by 100% to almost 1000% during this time period. Others that have just begun their move, and are on the radar of investors, include Porsche 356’s and Mercedes Benz 190SL’s as well as others.

What do all of these cars have in common? Some are performance cars, some are touring cars, and some are race cars disguised as street cars, but they were all built in very limited numbers. Most are heavily documented, and all share a universal recognition amongst collectors and investors alike.

Unless you live in a cave, you will recognize a Corvette, or a Porsche 356 or a Ferrari. And even if you do live in a cave, you may not know what a 300SL is, but you’ll know it’s something special when it is parked at the opening to your cave. To sum it up – rarity, provenance, and recognition seem to be what investors crave.

So how does that explain the phenomenal rise in values of cars like BMW Isettas, Messerschmidts and Fiat Jollys? It doesn’t. These cars were simply “discovered” overnight, so it seems. They have enjoyed this rise in value simply as a function of their popularity. I doubt they’ll come down significantly in value any time soon, but I also doubt that they’ll continue to appreciate very much in value.

Now you have a few indicators to look for in your search for the next rising star. Rarity, provenance, recognition and popularity. The first three are fairly easy to quantify. The last, not so easy. But even using these criteria is no guarantee for success. There’s an old saying in the collector car hobby: “Rare means that nobody wanted it then, and nobody wants it now.” This is largely true, even today.

So if you intend to mortgage your house to start investing in collector cars, you had better learn the strategies that investors use. I’ve built collections for investors in the past, and I’ll continue to do so in the future. In my opinion, the two most important things are to “diversify” and to know the true cost of your investment on an annual basis.

As any investor will tell you, you must diversify. If you buy only one car as an investment, and you are wrong, you’ve lost everything. Knowing the true cost of ownership is not as simple as it seems.

Investing is different from collecting. If you, as a collector, bought your 1969 Firebird 400 Convertible for $20,000 five years ago, and just sold it for $30,000, you made $10,000. If you as an investor did the same thing you probably lost money. You must factor in the cost of storage, insurance, maintenance and repairs, marketing (at sales time), and transportation (if you plan to bring it to a major auction). Don’t forget to factor in the cost of the money itself. Tying up $20,000 for five years has a real cost.

Opportunities still exist. It’s up to you to ferret them out. Just remember to take off your “collector hat” and put on your “investor hat.”