Early 1990s crash of collector Porsche and Ferrari values...how did it happen?

both the rise and fall were fast.
i was 25 at the time, and very upset at the prospect of never being able to buy some of my dream cars. i went to many auctions, and i could see some of the problem - obviously nefarious people walking into the room with briefcases full of cash handcuffed to their wrists accompanied by body guards, or dealers who were buying every old car they could find, polishing it up, and putting it out on the market 3 days later for 4 times the price, the willingness by banks or backers to leverage the car buying, and suddenly everybody was an expert.

but then a variety of things happened.

early on in 1990 the economy was faltering a bit, and then iraq invaded kuwait in august. oil prices went berserk, but it wasnt the price that scared people, it was the unknown. the unknowns about the oncoming conflict and the economy overall, induced people to think twice about parting with cash. they kept their hands in their pockets at the auctions. lots of chandelier bids, but cars were not really selling. then by 1991 the leveraged ones started hitting bids. the gulf war build up came, then desert storm, then the economic fallout when the stock market had a little hiccup, and it was a run for the exits.

the reasons why they say it could be different this time, is that rich people may not be forced to sell, and the leveraged buyers are not so numerous, and there is a broader base of buying across the world.

but i still think it can happen again. markets move in cycles.

buy stuff you like because if the music ever stops you may be stuck with it for a long time.

 

Stock market crash prompted some to find somewhere else to park their wealth and with Enzo's death it was first Ferraris, then anything remotely collectible with four wheels. At the peak F40 sold for over $1M and two years later were 25% of that.

The crash was dramatic and quick as explained earlier. What is different I think this time is it will be a stock market crash that causes the crash in car prices too.

The bubble curve is the same now, we have to be near the peak, but I have thought that for at least a year. I am still dubious that cars like the Dino are now blue-chips, although I agree they will likely never be $100k again.

As for the 308/328 family, they will see a spectacular fall in prices when it is obvious we are in a bear market.

 

This was a big factor, for sure. The Japanese were buying up everything in sight in the U.S....cars, art, real estate. That market was so hot that people were getting Hemmings by FedEx!

 

I was there in 1988 to 1993. Right in the middle of the hysteria. I was also totally caught up in the hype and both made a ton of money and lost a ton. I followed the market up and got caught out when it went down. Some thoughts -

- Ferraris and all collector cars HAD been increasing in value prior to Enzo Ferrari's death, but it was a slow rise that started in the early 1980s.

- When Enzo did die in August 1988, the buying spree didn't hit all Ferraris at once. It started with the more collectible cars and moved slowly to the production cars

- In the fall of 1988, I was buying new and used 328s for MSRP or less. A notable dealer called it a "trickle up effect". If the 512BB went up, then later the the Testarossas started to move up. The 328s started jumping up in Spring 1989 for example.

- Once I saw cars trading between dealers and and not getting sold to the end user, it was then that some some dealers said was the beginning of the end.

- The Gulf war helped crash the market. I was standing yards away from the auction platform at the Barrett-Jackson Auction in January 1991 when the auctioneers were begging people to bid on cars. Not buy them, just at least bid!

- When the regular person would come up to me and say "What Ferrari should I invest in?" I should have seen the writing on the wall as a very bad sign about the market.

- I had an investment advisor friend ask me the question "Would you buy that same car now for that price?" when questioning my logic for holding on to a particular Ferrari as an investment. I said "No way". But I will hold on to it and still sell for just a little more. That was a bad move.

 

If you want to buy it back, why did you sell it?

 

Ron, this is a super post for those of us who were too young to know what was happening then. Thank you for posting. There are some interesting similarities between your observations of then and what many of us see now.

 

Well in January 1990 everything was fine but in December it was a different story. This had nothing to do with an oil crisis, that happened really in 1972.
It was really a build up over years that caused the 1990 crash, and of course like always - greed. If you havent seen a video call "Inside Job" which is about the 2008 crash primarily, do download it . It is really worth while watching. One could say that market depressions since the 1980 are covered by what this video portrays.

 

Current market is mostly artificial IMO.

I've been watching the market for years. Many cars that received a bump up in price in last 18 months or so are still for sale...

Carrera GT, F40s, even Zonda's...I see many cars that where for sale then for a much lower price, not selling. Owners/dealers of these cars have bumped the price up to go with the market but cars remain unsold. Too few buyers, IMO. Someone put his CGT up for sale 6 months ago for a pretty reasonable price and hasn't had real interest. He posts here occasionally.

I'm not an expert by any means, but my opinion is that some of the cars that have sold for insane prices (the manual 599 taking the cake), are flukes.

That said, I believe some cars have simply adjusted to reasonable values. CS are a tad high in the UK, but LHD examples are more or less on point. About 2 years ago they where £100K (euro was a lot stronger then that it is now), which was quite low IMO, especially since your options on a 458 could be that amount alone!

Once again, am not an expert but these are my views.

 

I watched with awe the Ferrari run up in 1989. It's part of the Ferrari mystique that's dear to me. I think Ferrari broker Michael Sheenan summed it up best;

With every upward tick of the market, more enthusiasts were squeezed out. "The reason for the collapse is simple," says Sheenan. "Prices went too high. In 1985, everyone involved in the collectible-car market was an enthusiast. In 1989, they were all speculators. There are only so many enthusiasts who can afford $1 million for a car. The market finally ran out of end-users."



Joe

 

Re: 1985
I remember checking out a magazine from school (R&T IIRC) that had an article on Ferraris that were still affordable. Cars like the 330GT or 365 GTC/4. I remember the 330GT being mentioned as available for $10,000-20,000, but with cautions on the mechanical aptitude required to keep them running. Then I worked out how many soccer games I would have to referee (my job at the time at 13) to buy a $10,000 Ferrari. Didn't quite get there needless to say...

A $10,000 vintage V-12 Ferrari? Those were the days!!!

 

One of the key components of a bubble is when average Joes that really cant afford to be playing in the sandbox, jump in with both feet. They need to flip fast and that takes the market to its tipping point.

 

I was old enough to observe the whole cycle. I graduated from Georgia Tech in 1985 and landed a good job with about double the salary of the typical worker back then. I was not rich by any stretch of the imagination, but I was debt free with cash in my pocket. I looked around at a lot of collectible cars at that time. I was a British car guy since my first car was a 73 MGB, so that is where I focused, but I was also interested in other stuff. I remember looking at a decent 1960 Mercedes 190sl for 12k, a BMW 507 for 40k, a 246 Dino for 15k, a 68 Corvette convertible for 3k (needed a valve job), a 1966 Shelby GT350 for 10k (belonged to a friend of a friend and needed an engine rebuild), and several XKEs for less than 10k. Those were all asking prices. I thought hard about the Shelby, but I passed since I did not have a good place to store it. I bought a few MGs and Triumphs that I later sold at a reasonable profit.

I remember the XKEs going up first. The Pound increased versus the dollar and a lot of them were being shipped back to England. One of the local shops that worked on British cars pretty much stopped working on customer cars. They were buying up XKEs, doing whatever work would generate the most return, and shipping them to England.

I remember reading about the Japanese money coming into the US to buy up real estate. I remember some of the "talking heads" saying we needed legislation to stop the Japanese from buying up all the prime properties in the US. That was around October 1989 when Japanese investors bought Rockefeller Center.

I remember reading a story about Ferrari dealers being limited by how much markup they could have on a new 328. As the story went, owners of older 308s were basically doing a straight trade for a new 328 and the dealers were putting big markups on the 308s that were traded in. If that was true or not, I don't know.

I remember the crash too. "Nobody was buying". Prices had gotten so artificial, you couldn't tell if a car really had sold at an auction or dealership. The same cars would show up show up shortly after being "sold", at an unlisted price. When it was clear that prices had dropped by 10% or so, most of the buyers stepped to the sidelines. The drop off the highs only took a month or two, but prices continued a slow decline for years. By 1993, the market for most collectibles was in the dump. I got back into coin collecting and dealing in 1993 and it was not unusual for at least 80% of transactions (by value) to be between dealers and less than 20% with individuals that attended the shows. I bought some really great stuff back then. Better date gold coins and US coins from the 1790s and early 1800s.

Fast forward to 2015. A the beginning of the year, prices for the Enzo era cars were continuing their gradual rise from previous years. The 1975 and up Ferrari prices had firmed up a little, but prices on 348s, 355s, and Testarossas were about as low as they have ever been. Here we are in December and 348s are 70k, 355s are 90k and Testarossas are 120k, doubling in cost. Notice I didn't say "value". 360s and 430s have stabilized in price, but really haven't gone up. Is a 348 really worth as much as a 360? Is a 355 really worth as much as a 430? I know some of you will say "They are great cars and they aren't making anymore!". But really...

This smells a lot like late 1989. The US economy is holding up well, but we can't pull up the rest of the world by ourselves. Money is about to get more expensive. The headwinds are starting to pick up. If I had a 348, I would be selling the heck out of it.

 

How old are you?

 

...and the Fall

Michael Sheenan remembers it well. It was November, 1988. For the first time ever, a Ferrari 275 GTB/4 a "4-cam" sold for more than $1 million --$1,050,00 to be exact. Sheenan new the car, one that had been purchased by a fellow from an ad in Hemmings Motor News just three years before for $50,000.

"When I heard about it, I stopped taking calls. I sat down, had some coffee and thought 'This is too crazy, too insane' It was my signal to get out."

Like sharks drawn to blood in the water, speculators had moved into the Ferrari market attracted by the monstrous profits. "Briefcase brokers" with little more than leads and some photos peddled cars. By bringing buyers and sellers together, they made their cut without ever taking title to the cars.

Dealers were leveraging themselves to the hilt. Instead of buying one car for $100,000 they'd put cash deposits on five cars, hoping to sell them -at handsome profits- before they had to pay off the balances.

The usual rule of commerce were disregarded as Ferraris relentlessly climbed in value. "There was a time when I paid retail because I knew prices would only go higher," says Keith Martin, a dealer and publisher of the Sports Car Market Letter.

Attracted only by the money involved, many of the speculators had little appreciation for, let alone knowledge about, the cars involved. During the frenzy, unschooled speculators routinely overpaid, seemingly without consequence because prices continued to rise.

With every upward tick of the market, more enthusiasts were squeezed out. "The reason for the collapse is simple," says Sheenan. "Prices went too high. In 1985, everyone involved in the collectible-car market was an enthusiast. In 1989, they were all speculators. There are only so many enthusiasts who can afford $1 million for a car. The market finally ran out of end-users."


* Road & Track 2/94

 

This is all really interesting. Thank you everyone with all those insights from that era. I'm not too young to remember the late 80s (sadly) but the cars I was driving then were not remotely Ferraris (sadly, also), so the whole boom and bust passed me by.

There seems to be a general view that all of this is starting to happen now, also? Or is there not a general agreement on that kind of thing?

I for one haven't come across people who know nothing about cars, buying Ferraris for investment, yet, and I live and work in central London where there's a lot of money flying around. In fact I still don't know anyone who owns a Ferrari who isn't a real car enthusiast, in fact a Ferrari enthusiast. Some of these people are also hoping to make some money, but that wasn't the point of their purchase.

Do people know people buying Ferraris just to invest in, with no passion for the cars, as happened in the 1980s?

I am more familiar with a more recent event, the fine wine price crash of 2011-now. Prices for top brands went up by a similar % to many Ferraris now. Back in 2011 I did know a lot of non-wine people who were suddenly buying stacks of Lafite, Mouton, etc, with no intention of ever drinking it (of course it's much easier to buy wine than a Ferrari). And there were loads of wine funds popping up.

The crash there was led by China's new anti-bribery policy; but in the runup to that, the vast majority of top growth sales was to speculators. Even in China, the people buying top wines were speculators. No end consumers at $18,000 for a case of Lafite. There was also that "Sheenan moment" when an en primeur (future) of a case of Lafite sold for 3 x market price at auction - when the futures were freely available on the market.

Are the vast majority of secondhand Ferrari sales now to speculators? And is there a difference between a speculator and an enthusiast/speculator? After all, you can drive and love a car while hoping it improves in value. Think some members of this board are in the latter category. (You can't enjoy wine without destroying its value.)

If there are lots of clueless people stashing their money in Ferraris they don't understand, and selling to each other, that's a thing. I'm not sure I'm seeing this here (yet) in the UK, but others know more than I do.

 

Lots of good material posted above. Basics are that when people figure out that collectible xxx is not gonna double in price from where it currently is, the market starts slowing down and stalls. Not -yet- going down. But, when both owners and buyers figure this out, the market can just tank, el quicko.

I saw a red Sunbeam car cross the block a day or two ago at a Mecum auction on TV. The hosts were blabbing about how these babies had pretty much doubled in price from $50k-ish to $100k+. Typical hype it up sort of crap. Confirmed(to me) what I already knew.

Pay attention to next month's auctions in Scottsdale. Should be revealing and quite interesting.

Judging by what I see of cars for sale on Fchat, TV and elsewhere, I think the Fcar market has either stalled big time or hit that wall that'll result in, at best, a softening of the market, or at worse, another big downturn.

Watch, or better yet, live through a few of these boom/bust cycles in the collectibles markets and you can see how the Dutch got so worked up about Tulips hundreds of years ago.

"I'm buying it's cuz it's going $UP$ or I'm buying it's gone $UP$" = Run for the hills...FAST.

I've lived through two Ferrari bubbles, lucked out and benefited from both, but would have been much better off never having gotten into either of them. Too bad I didn't know that beforehand, but life often doesn't work that way.

 

A side note: Dealers, at least those who have been around a long time, are put in a dilemma during frothy markets. I've been there. They know prices are too high and buyers will likely get killed. They know when the music stops, their inventory will decline in value and business will be bad for a while. But you have to keep doing business and put food on the table. Most dealers would prefer a more stable market where inventory is not too hard to buy and sell.

Dave

 

All of this is so depressing for those of us who don't want to sell our cars now, but know we will be sellers in a couple of years time... My head tells me I should be taking advantage of this market but my heart just doesn't want to give up the car just yet, but I will have to in a couple of years due to physical problems.
Warning signs locally - at a recent car show I was not even out of the car when a 'broker' rushed up and shoved his card in my hand declaring he had a collector desperate for a carbed 308. Also interesting, the card was car broker one side, finance broker the other! LOL, I think we're only a couple of steps away from the slippery slide.

 

Interesting.

Wonder if the manual 599 GTB is our ''madness'' moment.

 

Only a handful of manual cars with a handful of individuals willing to pay big bucks for them. Some people extrapolate those results to the rest of the market, but you really can't.

On a side note, it's nice that the 360 and newer Ferraris haven't taken off yet.

 

Like an old saying in the Oil & gas industry which goes something like: "The best cure for high oil prices is high oil prices."

 

Incredible conversation here, I'm far too young to have remembered anything that happened back then. However looking back with current knowledge, all of it makes lots of sense.

I think the manual 599 example is definitely one of the signs, and the insanity we've seen even in just the last 12-18 months surely is as well.

Anytime someone tells you "This time is different" - run, do not walk. That is your cue to leave. Happens in every possible asset that's ever been valued by humanity, and will continue to do so until all information can be transmitted instantly to everyone. And even then, might still happen.

 

Well, hold on. This time really can be different with completely different circumstances surrounding the run up but the result can still be same. So let's be clear: there are a lot of differences between now and then. However, just because it's different doesn't mean that history won't repeat itself. Many people think that the market is over saturated, especially in that 500k to 2m mark. That's why you see action in the lower priced cars that haven't seen the run up yet.

 

The general agreement happens in hindsight. In my view there are too many common Ferraris that have apparently quadrupled in value in two years, for no apparent reason other than that buyers are afraid of missing the ride up.

A dealer actually told me as much recently. No confidence in current price levels, but that hasn't stopped them from hooking as many fish as they can this year.