Why a $52,000,000 Ferrari

Why a $52,000,000 Ferrari Does Not Signify a Classic Car Price Bubble



Why a $52,000,000 Ferrari Does Not Signify a Classic Car Price Bubble - The Flex Blog


A few weeks ago, I attended The 2014 Palm Beach Cavalino Classic, the foremost assembly of Ferrari owners and aficionados. I bumped into old friends and associates, and met countless others, all of whom are intimately familiar with the classic car realm.

Of the hundreds of experts and investors I spoke with, very few felt there was an unstable bubble forming related to classic automobile investing.

Prices are soaring to astronomical heights on old Ferraris, Bugattis, Bentleys and other classic autos. You’re likely aware of some of the more unfathomable recent purchases including the $52,000,000 paid in 2013 for a ’63 Ferrari.

Maybe the investor in you, having learned lessons from past stock market or housing bubbles, is prepared to sit this one out. But if you plan to wait for cooler heads to prevail, you can forget it. Experts agree, there are few, if any, investment opportunities as solid as classic collectibles.

After 2008’s worldwide crisis, investors flocked to alternative investments. Fine art, gold, and fine wine collections were targeted for their growth potential. But, for varying reasons, those markets have corrected and can no longer be relied on to provide triple digit returns.

While other assets have peaked then declined, collectible classic cars have outperformed. A bubble occurs primarily when people are speculating. And that speculation often involves overextended credit. Add to that, many investors fall victim to hype, euphoria and “irrational exuberance” as it was once called. That’s not the case with the collectible auto market.

Believe The Hype

Regardless of the hype and euphoria, there’s one primary advantage classic cars have over the above-mentioned assets: scarcity. Ferrari S.p.A. cannot go back in time and create more 1960-era GTOs or Spyders. There is a finite amount of these coveted assets, and that is what lends to the ever-increasing prices

Gary Brustein, Flexborrow's CEO, spent almost 4 decades in the exotic and classic automotive industry before founding Flexborrow.

FYI

 

People think it is crazy to pay that kind of money for a stupid thing like a car. A couple of years ago somebody paid more than twice that amont for a version of the Norweigan painter Eduard Munch's "The Scream", 35"*20" of paint. A rather ugly thing full of angst. The only thing you can do with a painting is putting it on a wall and look at it. A Ferrari you can enjoy with almost all senses (OK, you could not eat it...). You can take it to Pebble, to Villa d'Este, to Cavallino or have fun on a track or a tour. i wish I had that kind of money to invest....

 

Oh Ohh...
I hate it when they do that.

 

But how will future generations look upon these old cars? They not only live in a digital world where, perhaps, personal transportation does not revolve around the internal combustion engine, but they were born in it. Will they feel the same fascination for what in essence are merely artefacts from an ancient world?

 

the only ones that are worried about current price levels are those that are living in the cheap seats of an era gone bye... are not in touch with the reality of the sums being earned by today's generators of wealth... and the millions they are spending monthly to maintain their life styles... these car prices are small change in the grand scheme of their lives... there is a greater supply of those that have mega wealth than there are F cars for them to acquire...

 

All true

But fairly decent chance it's a bubble - and most billionaires I know don't care about cars.

 

All the governments around the world are doing different forms of "quantitative easing" an Orwellian term for "printing the **** out of money". This harms the lower class because it introduces inflation on everything like food, energy and other common goods. However because the governments are also overloaded with debt, they cannot allow interest rates to go up. This has had the effect of allowing banks and their exclusive clientele be able to borrow money at extremely low interest rates. Sometimes you can borrow 90% of an asset at almost zero interest rate and you get 100% of the asset appreciation. If they levered 90% and invested only 10% equity, with only a 10% rise in price, they have doubled their investment. This is why the stock market is in a bubble even though the economy is still crap and people are still out of work. Aside from kazillionaires like oil sheiks who are collecting exclusive and limited number of cars like the 250 GTO before their friends and rivals do, you now are seeing investment funds who use this 'leverage' to buy high end classic cars. Classic Ferraris are limited in supply so this market will continue to rise so as long as the supply of money continues to grow and its borrowing cost is cheap. This market and all other markets will collapse if there is a currency collapse. However you will be much better to hold a valuable and limited asset like a classic Ferrari than a pile of fiat currency (i.e. currency with no intrinsic value) stashed away in a mattress because those will be worthless. Ferraris are the new gold. Following the last Great Depression they made gold illegal to be owned by private citizens. They made you turn it in for paper money which later was devalued over night. I doubt they will do that with cars.

 

Did the 250 GTO, 5111GT, actually sell when it was reported by Bloomberg to have been sold, and if so was it for the $52m (or $52.5m) quoted? Some very knowledgeable FerrariChat members said it hadn't actually sold at the time of the report.

Besides 5111GT, as far as I know, the highest reported price for a 250 GTO is $42m for 4675GT, one of the 4 original S1 GTOs Factory/Scaglietti re-bodied to S2 1964 specification.

 

"Those who cannot remember the past are condemned to repeat it" - George Santayana

 

According to Forbes there are 1,645 billionaires in the world. Only 2% of those can own a Ferrari 250GTO at any one time.

 

Excellent post.

 

Or only one billionaire who wants them all. Bill Gates with a net worth of $76 Billion could easily purchase all of the GTO's which are worth "only" $1.66 billion.

Anybody want to guess as to what the "market cap" of all the vintage Enzo era collectable Ferrari's would be in total?

 

I dont think you can ever consider a 'market cap' for unregulated assets like classic Ferrari's. Realistically if for some insane reason Bill Gates and pals actually did want to buy up all the cars, their demand will drive up the prices so much that the last 10% of the units will hit the stratosphere because instead of buying to trade, they are essentially removing them from the market to store them away in a vault. The scarcity value of what people will be willing to pay for the remaining 5 to 10% does not mean you can take the price of the last sold unit and multiply it by the inventory in storage. When the last unit is gone/sold, what you will wind up is a broken market where there is no value because there will be no more trading and 'price discovery'. In other words, in order for a 'market' to function properly it would mean that there has to be a certain volume of trading or 'float'. Let's hope this never happens and the enthusiast continue to support the classic cars so that the world will enjoy them at shows & rally's.

 

there is a worldwide lack of credit, the banks are restructuring and de-levering making them unable to fuel credit markets or make any expansion of credit... an element of a bubble requires masses of participants and to use credit...

those with wealth enjoy a inverse paradigm when it comes to credit... those with resources do not use credit to make mundane purchases such as collectibles... the greater the wealth the less credit used...any reversal or correction in the value of their collectibles just creates a lower value entry on their ledger... there is no panic to cover debt regardless whether the asset is liquid or not.

any corrections in F car values will not affect those owning them, primarily by the relative scarcity of cars vs the large number of those with wealth... research has shown those with resources pay for their purchases in full... eliminating the need for instant liquidity to cover outstanding debts ( a major element for bubble to burst )

 

Therefore it's no bubble.......

 

Didn't Damien Hirst sell that diamond skull "For the love of god" for like USD 100 million?

 

I dont believe you are aware how fund managers who manage most of the money for private investors and banks operate. Leverage on sub-prime mortgage derivatives crashed the market in 2008. Leverage on all asset classes will cause the next crash.. whenever it happens it will be the crash that ends all bubbles.. in dollar terms. The reason why art & classic cars and other tangible and finite assets have increased in value in dollar terms is because the dollar, the fiat currency, is being devalued by the limitless money printing

 

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fund managers are a dime a dozen, like consumer automobiles for Joe lunch box, who cannot buy a car without consumer credit... they have their own zip code for their asset class which has nothing remotely to do with high end collectibles and how they are acquired. It appears you are drowning in the cheap seats with misinformation about how those with resources make their acquisitions and pay for them... it's all in plain sight... try Bing or Google, you may be surprised to what you find....

 

The problem is that its not just Ferraris. The rising tide is lifting way too many boats. Thats a problem and by design, because when they decide its time to close shop and move on to the next asset they will topple them all and by having so many participate you helped to create the bubble. Thats why it "bursts." The move is exponential and you cant get out. The market is flooded with way too many cars, from Ferraris to Porches to you name it. Its unfortunate the move has been so sharp, because these cars should appreciate in value over time, because they do have real value to generations of people, plus their tangible and insurable. That being said, if it bursts, it is gonna be a mess. Nothing goes up in a straight line forever.

 

Questions for the Thread:

1. How many ''Classic Ferraris'' exist ? The qualification here is 1960-1973.
2. How many ''Classic Ferraris'' exist ? The qualification here is 1947-1960.
3. How many ''Classic Ferraris'' exist ? The qualification here is ONLY Race Cars to 1968


There are 4.200 residents in central London with assets in the excess of 30'000'000 pounds.
There are 12'000'000 millionaires in the world.
There are 3.7M millionaires in the USA
Millionaires increased 10% last year in the world.
There are 1.650 Billionaires in the world.

 

one can make a concession to a market segment of consumer cars that have been produced by the thousands, which are now being resurrected by the thousands to meet the appetite that Joe lunch box has...to the point that there is an industry producing replacement parts to feed the demand... this class of asset / collectible meets the requirement of the masses getting involved, paying ever greater premiums as "more new cars" are being turned out... everyone that wants one can get one... there could be a point where demand has been satiated and further absorption is not possible, waiting for the herd to stampede and leaving no one with any interest to enter the fray

 

QUOTE] Food for thought, the Hunt's cornered the silver market by only acquiring $4.5 Billion of silver.[/QUOTE]
Attempted to corner the silver market.
.......and how did that attempt end up?

 

Attempted to corner the silver market.
.......and how did that attempt end up?[/QUOTE]

the Hunt's ran out of money, to cover their margin calls for the options they held... it is an example of "credit" used... in a declining market the owner of a contract must guarantee that they can perform ie. meet the loss in value which is made up by posting additional funds as a commodity loses value to guarantee performance under the contract... their silver positions controlled the market, their liquidations to meet contracts exceeded market demand for silver forcing prices to recede bringing on more margin calls

they created their own bubble through leverage but lacked the resources to cover changes in the market...

 

The US government changed the margin requirements and introduced special rules to stop them. Many on the federal commodities exchange who regulated silver did this for personal reasons and for personal gain. The Hunt's might have been ok otherwise as they also had Saudi investors.