is the bubble due to burst?

There really is no point to be made. Interest rates at 0 since 08, auction houses posing with their cheerleader outfits on, shamelessly pushing cars as "investments" on the public. The dealers playing football with cars, literally creating prices out of thin air, and huge price spreads of vintage model cars that are not rare. People in greedy, self-absorbed excitement creating any rationale possible as to why prices will hold or go up. And the most obvious visual sign, the value trend at a 90 degree angle. Any wise person on the planet (people who are successful and have been around the block) will tell you that the end scenario is a foregone conclusion.

 

I want people to know I did not write this.

But I wish I had!

 

Agreed.

 

agreed. the madness witnessed this weekend was shocking. i was momentarily pleased and then horrified, then depressed.

 

Of course I think we can all agree that there have been some spikes in some cars, some more than others. But there is no established asset class that does not possess such properties, and whether you want to accept it or not, blue chip classic cars are an "asset class" just like art and other collectables. So there will be ups and down accordingly, however unlike some blue chip stocks they will always be desirable and have a value, because it is a "hard asset". That is what a lot of people like. If you like your car a lot there is every chance a few more people in the world will also agree with you and want to thus acquire one if they haven't got one already. So a value will always be there and unlike some stocks for example the value will never be or can be zero.
Enjoy your cars everybody. I don't begrudge this whole scenario that is occuring at the moment. It might and does sound a bit nuts in some quarters, but yes I am still buying(carefully mind you-and always with the understanding that the value may go down, 30-40% or more, however I love what I buy so I am happy to accept this, and I am sure I am not the only one with these thoughts), but trying to buy with value in mind as much as anything, which of course will always be relative.....

 

There are some sound demographic and economic reasons that have supported the price increases in collector cars over the past 4 years:

A huge group of baby boomers in western economies have all at the same time hit that time in their life where they longer funding their children's education, have sold their businesses / done very well in real estate and are finally able to "indulge" their passion. Some of this group are car enthusiasts and have always longed for something special.

Low interest rates: the opportunity cost of buying a car is virtually zero - the thinking is that "when you are earning nothing on having cash in the bank, you may as well spend it on something fun."

Recovery of prices after the GFC - prices had been on an uptrend until 2007, then collapsed in 2008 -2009 and started recovering again in 2012 as confidence grew in the economy. The increase appear substantial since the lows, but only when you forget that prices had fallen so much from2007 -2009.

Recovery of the sharemarket and real estate since 2009. Some people have made a lot of money in the past few years and are confident enough to spend some of it.

Lastly there is a finite supply of collector cars.
I've posted this before: 20K carby era Ferrari's made (ie pre 1980), about 80% still exist, so 16K cars left on the planet. Assuming that most owners hold their cars for 10 years, its 1600 cars on the market globally for prices to stay flat. That's nothing considering Ferrari is THE iconic car brand. Then add a few hundred new buyers to the mix every year and its no wonder prices have increased.

Dealers / auctioneers seem to get blamed for the price increases - but dealers are not market makers: they don't control the supply and buyers sellers don't have to use dealers to buy / sell cars. I don't begrudge dealers for trying to earn a living, that's why they are in business, and getting the best possible price for a car is what they are supposed to do.

In any liquid market you are also going to attract speculators - they are taking a risk in buying a car with the hope that it will increase in price. Sure the motivation for ownership is different to an enthusiast, but when you are selling a car, is one buyers money more worthy than another's, or do you sell to the highest price.?


A lot of the commentary about a "bubble" seems to come from people who don't own a classic car, so I can understand why they would be disappointed that prices have increased and hope that's its a bubble and prices will fall again.
But I also wonder, why didn't they buy the car of their dreams a years ago (when they where more affordable) ?.
I suspect its the very same people making noise about the bubble now who where sitting on the sidelines back in 2009 waiting for prices to fall even further before jumping in, but never actually did. And that being the case, it follows that price and value was always their primary trigger, rather than any enthusiasm and enjoyment of ownership and to me that goes a long way to understanding their preoccupation with prices now.

M

 

Is it only me that thought that the weekend wasn't that mad?

Mediocre cars with estimates that were way too high didn't sell, mediocre cars that had no reserve sold at the correct prices (i.e. lower than estimates), really nice cars sold at market correct prices and really special cars sold for big bucks.

I actually liked that the market was discerning and there was definitely not a tide rises all boats sort of thing going on. I actually thought it was quite healthy.

 

GREAT post, mike.

 

Mark, I agree. In fact, I think when it's all said and done we will look back at last Monterey (2014) as the crazy one.

 

I agree 100% I have no idea what people are talking about when they say madness I think the complete opposite I thought this was the first auction in a year and a half that was a nice reality check... vintage higher production stuff or either sold or were no sale high bids exactly where real markets are, there was no 950k dino, there was no 500k porsche 3.6 turbo with 25k miles, , super rare special top vintage stuff sold for big big bucks, many many air cooled p cars were no sales with high bids 30-40% below estimates , (many of these cars were dreamer sellers) and the modern special edition stuff was still high but rational....i,e, stuff like 575 superamerica cars sold in the 300-400k range as opposed to dream scenarios of dealers/dreamers looking for 600k range... a 500 b sold around 400k and yes one did over 600k but that was a 100mile silver car... porsche carrera gt sold in the 700-800 range not the 1-1.2 mln dreamers range....

so when some people saythe auctions were mad , I think the 100% opposite

 

Hear ya.

Seemed like the stuff that had big gains in '14 (Enzo era production cars, Ferrari Supercars, Countach/Miura/rising-tide Lambos, Ford GT, etc.) - generally leveled-off; exceptions for exceptional cars in either direction, of course.

And cars that have found their footing (in multiples) in '15 (550 Barchetta/575 SA, 930 Porsche ...) simply illustrated support of this in Monterey.

And ...

Significant one-of one's (i.e. Bertone SWB) are in their own zip code, as always.

 

I can't speak for everyone, but none of that holds for me personally. I suspect the people making noise about the bubble now are people with independent thought, who understand markets, and don't follow the herd mentality.

Here is the thing that some here don't seem to understand. The pool of car enthusiasts is wealth-independent. In other words, someone who is a car enthusiast need not come from money. To afford to buy, however, one needs money. The wealthy (vast, vast majority not self-made, so mostly inherited money) do not necessarily like cars. In fact, the majority (like the general population) couldn't care less about cars. There will be a subset that like cars, of course, but that is independent of their status as wealthy.

Of the broader pool of wealthy, however, many will buy cars for other reasons (status symbol, speculation, investment, etc.). So we can therefore make the observation that while you need to be wealthy to buy the majority of these cars, you need not necessarily be a car enthusiast. In fact it is highly probable that a majority of expensive cars bought by the very wealthy, are not purchased by people who really care about cars. Now, perhaps the majority with collections in fact like cars. But we can't know if enthusiasts make up the majority, or if the investors are the majority. We can't know, but we can infer from mileage put on these cars (so many have extraordinarily low mileage) that many collect for value reasons, primarily, rather than to engage in the joys of driving a classic.

So, it becomes quite clear that it is an absurd notion that most people who are commenting but don't own classics are focused "more on price" ... "rather than any enthusiasm." That is not a conclusion that can likely be drawn. Those who are currently in the market BUYING are the ones more likely to be focused on price, with the hopes of catching an upward trend. Anecdotal evidence would support that too.

It is easy to just pile in and do what everyone has clearly been doing (paying higher and higher prices). I am now in a position to buy some of these cars (certainly not the ones approaching $1mm+) but I will not, because they are irrationally priced. When I see people no longer discussing "buying before prices go up further" or "maybe the 348 or XXXX car will be next..." then I can enter the market, confident I am not throwing away hard-earned cash.

 

People who own multiple cars often don't have the time to drive then all as much as they'd like and when the usage is spread across 5 -10 cars, the annual mileage on each car can be quite low.
Before I take a car out the weather needs to be nice, I need to have the time and to be in frame of mind to want go for a drive. It's also nice if there is "purpose" ie club run, cars and coffee, meet up with friends etc. Sometimes those circumstances don't coincide for a couple of weeks, so no driving.

I think speculators purchased a few years go. The majority of people buying now are hardcore enthusiasts who absolutely want a car and current prices aren't a deterrent. These buyers would rather be driving a car now, rather than waiting on the sidelines for a few years in the hope that prices will drop , they have realized you can never make up for lost time, but its easy to make some more money though.

If you spend 100k on a car, and the price happens to drop back to 50k in a few years, then the depreciation will have been no worse than buying a new luxury car. So it's a "meh", people accept that and don't give it a second thought, in fact they expect/plan for it to happen. At least if you buy a Ferrari you'll have 5 years worth of good memories ( irreplaceable) and if prices are stable, then it's cost you very little. But the notion that there should be "no throwing away hard earned cash " when owning a Ferrari/ collector car is odd. It's accepted there is a "cost" attached to all kinds of entertainment or hobbies, whether they be holidays, boats, entertainment, travel, boats or cars..

I've met a few people who (despite having the S$$$ and professing to be car enthusiasts) have never found the right time to enter the market.
Either prices will be falling (and they say they are waiting on the sidelines for prices to stop falling before buying) or prices will be increasing, (in which case they are waiting for the bubble to "pop" and prices fall) ,or prices have been stable so there was no urgency for them to do anything. They end up doing nothing.

M

 

Whom?

 

Ehmm...SuperDave for a start as he has just confessed above......

 

Agreed. The best cars brought the best money. So-so cars brought so-so money. It didn't look like a buying frenzy, more like a mature market with savvy buyers only paying-up for top-level cars, with sane money being spent on average/above average cars. With prices where they are now, buyers are being wise when getting-into a car at this level and only spending big bucks on the best.

 

In all fairness guys, he is conservative when it comes to his money, just as many others are out there. Another thing to take into consideration, when a bubble does burst, the price falls hard and fast. A fifty percent decrease could happen in a matter of days or weeks. That's nothing to sneeze at. Last time it was 70 percent and quick.. The information is out there. Not saying that it has to fall that fast. But if it does it will not take a year or too, it will be swift. Especially on the high production stuff. It's one thing to say that you wouldn't care about a car depreciating that much after buying it. But after forking over 300k for a 993 Turbo, and then seeing it fall back to 80 grand let's say 1 month later, I think you'd be pretty pissed off. Conservative or not

 

Please don't take this as argumentative. My question is genuine, I am not posing this as a jerky rhetorical response.

What car fell 70% I am in the biz and I can't think of any cars that fell 70% besides possibly a hemi cuda but that was a very specific car with a specific buyer that was hit VERY hard by the housing crisis. Its for sure an outlier.

 

[ame]http://www.youtube.com/watch?v=W5tQm8HBB2Y[/ame]

 

Really? Seems like the obsessive focus on lower mileage is the driver. Admittedly it is for more recent vintage (80s and newer) where it matters more.

You can think whatever you'd like for when speculators purchased, but it is not borne out in the actual or anecdotal evidence.

$100k to $50k over several years is "meh" but $500k to $250k over 6-12 months is not meh.

Agree that some people sit on the sidelines. I've purchased 3 sports cars in my life. None of the purchases were rational, objectively, but I keep my cars and try and enjoy them as much as possible. Most recent purchase was within the last couple of months, but it is a modern car and unaffected by this mess.

 

I confessed what above? Please quote me.

I have purchased two sports cars in the past few years. One very recently. I purchased another many years ago and I still own all three cars, despite very inconvenient circumstances to actually have these impractical cars. I'm also not "wealthy" and certainly not wealthy enough to partake in high end Ferrari collecting like others on here.

If you're talking about Ferraris, I actually considered some recently, but relatively more modern cars. The CS is particularly compelling. For the cars I truly lust after (F40) it is a matter of price point and the fact I A) can't afford something like that now and B) think all the prices in the market are wacky.

 

The question was asked by Greg in response to Mike, as to who is sitting on the sidelines waiting for prices to drop. I suggested you as you stated that you would not buy currently as you felt the prices are irrational at the moment, inferring you are waiting on the sidelines for prices to correct/drop...that's all..

 

The actual comment was some people wait when prices are low, to see if they go lower, and also when high, to see if they will pop... and then never buy. Sitting on the "sidelines" permanently.

I don't sit on the sidelines and just prognosticate. I was simply never in a position to buy during normal or even depressed markets since my finances wouldn't reasonably allow me to. If I was in a position to buy an F40 for $400k, $500k, $600k... I would have been all over that (and at higher prices too).

As an aside....

I would buy at current prices too if I had the funds (i.e., a liquid net worth over $20mm to plop down $1.5mm on a car) but would be under no illusion that it is a sound purchase financially, and I would acknowledge the bubble in the market.

Would I buy a car like that if I had a net worth of $10mm, a lot of which was in stock / real estate and with some serious debt too? Then I would need to seriously think through the value I'm getting. I personally know many, many people who had Ferraris, Lambos, etc, only to be forced to sell because their businesses either failed outright or tanked. So I know all too well that many high net worth individuals and families are much more precarious than a simple number might suggest. Not only entrepreneurs either, but actors and athletes (which make up a relatively sizable share of $20mm+ households). Lifestyles grow to fit the "wealth" and a lot of people over-reach.

 

There are a lot of good points here but there are some other factors.

First, if you have no debt and buy with cash, you truly own your assets. Yes, you don't get the "benefit" of leverage and you can't buy as much but how much do you really need to be happy? And for a lot of us, security is happiness. I know that I couldn't sleep at night knowing that I had to make payments on things I owned. If you cannot buy something because to do that, you would have to take on debt, I definitely wouldn't fault anyone for sitting on the sidelines. That's just prudence. Look, I know I'm in the minority here but I drive a $5k station wagon as my DD because I don't see the point of driving something nice just to see that money go down the tubes in depreciation when all I need is my station wagon. You can't have everything so you just prioritize what you want and decide what to do without.

Secondly, let me tell you the story of "my" 288 GTO. A few years ago after I bought my F40, I had the chance to buy a nice 288 GTO. The F40 is my all time dream car but the 288 is my second favorite among the halo cars. It was $750k, up from $400-ish. I couldn't believe that jump in prices and I passed. It would have been a bit of a sacrifice to come up with the money without debt but I could have done it. My thought was that I could buy another one just as nice for that price or a little less in a year or so when I could spend that money more easily as my cash flow would be even better. Well, prices jumped to $1m, them $1.2m and now they're $2.2m+. That $750k looks like a dream price with the benefit of hindsight bias. So while everyone thinks their crystal ball is perfect and call for a 70% crash in prices in a month, the other side of the coin is that you might be saying good bye to a dream car forever. I highly doubt I will ever get a chance at a nice 288 GTO for $750k again during my lifetime.

By the way, if someone, like me, bought before the run up in prices then I'm sure that they had to endure the same "you're crazy" statements that I did. I heard all of the arguments, "it's only worth what someone is willing to pay," etc. etc. etc. and I was dumb to be buying cars when there the economy looked so crappy and these things would be valueless any day now. Well, look what happened and now everyone is saying that people are fools for buying in this market because prices are now so high and they're so out of touch with reality, etc.

So realize that there always are detractors but if you try to please people, you'll never fulfill your dream. Sometimes I think about that and smile as I turn the key and hear that sweet Ferrari engine fire up.

And, as I always remind everyone: cars are NOT investments. They're cars. I guess the only benefit to owning cars as investments over stocks or something like that is that you don't walk out into your garage and find 60% of a Ferrari but you can't say the same about your Etrade account.

 

You have clearly enjoyed and (as a secondary issue) have done well with your purchases. That said, and what I'm sure you recognize, is that you want to buy when people are talking about the cars not being worth anything, or the market staying depressed, etc. Rather than buying when people are worried about what car will run up in price next. Because people overreact in both directions. The 288 GTO is a car that was likely underappreciated for a while, in the shadow of the F40 (and the 959). It is arguably fairly or over-appreciated now.

I suspect you may not see a $750k GTO (I don't know), but you may well see a $1mm GTO. That may not matter to some, but it may matter to others. If someone is a major enthusiast and has $5mm in liquidity, that $500k-1mm difference may be enough to put them off from buying.

Prudence is actually in short supply. I think people overestimate the durability of many buyers. I imagine in the ultra high end of the market, it becomes a bit more stable, but that market in the past has seen the most volatility in terms of percentage declines from peak to troughs.