Wealth report: why so few sales of exotic cars??

Everyone spends their money on different things.... Not everyone has interest in an exotic car. In reality, they're a horrible investment (with a few exceptions of limited classics). You really have to be passionate about cars to justify the expense.

Many people just choose to put their money in to their house (or another house).. travel, invest in their business, hookers and cocaine, etc.... To each their own.

 

I think wealthy or not so much, people look at cars as toys and in some cases collectables (classics). It's different how people look at houses. Can't really make a good comparison with cars and houses... Houses are more of a "need." Cars are more of a "want."

 

There are a lot of other luxury goods out there that compete for peoples discretionary spending. For some people a yacht, vacation home, etc. are important so they spend their money in other ways. I think you are also seeing some hesitance, even in the upper ranks of income and wealth, to turn back to spending when the economy is not on solid footing.

 

I was not thinking to invest in cocaine, perhaps a good idea for my old days!

 

Yeah, I gotta say, most people don't care about cars at all. In my building, I would imagine most people could afford whatever car they want, but in the valet it's a bunch of priuses, benzes, and bmw's. Only occasionally do you see the random SLS, 16M, DBS etc.

 

wow -
crazy comment - i guess it depends if you are buying or selling ??

 

I am fascinated about the elasticity of the demand curve for luxury goods. Partially because I used to be in the custom home business and partially because I'm curious by nature.

My experience has been that the wealthy focus first on their home. Where they live, the size of their home, the style and so forth becomes a big part of their self-defined identity.

The wealthy buy jewelry and clothing for the same reason. It defines who they are.

Daily driver cars are brought by looking over the their shoulder, i.e., what are their neighbors driving.

From there, it depends. Most spend their money on a second home or whatever. They may buy horses or art.

But the ones who buy high-dollar sports cars, in my experience, are generally car guys just like you and me. I'm not saying Ferrari owners are not motivated by status. However, somewhere, there is a car guy gene in most owners. Even if they don't have the time to drive them much, they still want a Ferrari because they have always wanted one.

Maybe another way of saying this is non-car guys rarely spend their money on Ferraris. There are other toys that satisfy the status meter.

Maybe this is why I have always liked being around Ferrari people. Yeah, there are few posers. There are few jerks. But overall, they are cool car guys.

Dale

 

I've had all kinds of nice cars...I moved to a very nice new home in a congested area....4 min drive to work, never go over 45mph...sit at red lights...now have a Chevy Tahoe (loaded of course!).
Restoring a '59 Maserati...beyond that I no longer have any interest in cars.

 

We are not out of the woods yet, financially. Which could mean all the dumb money is gone & the smart money still sees risk and or investment possibilities for the future.

 

Tiger's yacht is for sale.......that's why....LOL!

Dr. Who, do you still go to the FCA events?

It seems they have recently been dubbed "private"......

 

Everyone has things they like to buy and or do. For many people, cars aren't one of them, or they're simply an afterthought. I'm into cars because of my brother, he got me hooked on them when I was younger. He makes more than enough now to afford an F/L/P-Car but doesn't even own a car now. Why? Primarily, because he lives in Manhattan and thus there's limited need for a car, secondly because he prefers to use his money for other things.

I'm sure there are plenty of wealthy people out there driving around in Acuras and Lexuses thinking that Ferrari's are absolutely pointless and wastes of money.

 

Lots of holes in the statistics you quoted.

First, wealthy people tend to be older and are almost always male. Car lust tends to peak when you're younger, maybe 20-30 years old, value speed, and need to prove yourself -- to women, to the world, etc. So, the population that wants and can afford these cars isn't endlessly huge.

Secondly, wealthy people tend to manage money well. Dropping $300K on a Ferrari 599 that will be worth $100K in the near future is a stupid splurge unless you REALLY like that car. It's miserable value, not collectible, and destined for obsolescence. A smart investor with a serious car crush would go with something like a Daytona, which probably wouldn't register in that '35,000 vehicles a year' stat. But for the most part people who manage money well seem less inclined to be into cars. Warren Buffett drives some plain jane American sedan. That's extreme, but there is evidence that the very wealthy have less need or desire to project wealth through their car.

Next, among hardcore car enthusiasts, a lot of the serious money goes into vintage collectibles that probably aren't counted in luxury car stats. And a lot of money goes to used exotics. If someone buys a Porsche 550 Spyder, Jag XK-SS or vintage Bentley Blower, does that count as an exotic? They could have bought a Gallardo for every day of the week instead.

Finally, as others have said, some people just aren't into cars. That are dozens of rational reasons to take the Mercedes SL over the Ferrari California. Or even a BMW 3 Series over either. Most people just want a car to start, look nice, run and be maintainable with no surprise costs. You can get that in a Lexus, BMW or Merc -- no drama, decent cachet.

Finally finally, the automobiles you mention aren't "one of a kind". I like the Aston DB9, a lot, but it's not unique any more than 18,000 Ferrari 360s were. I would argue that with exception of Bugatti Veyrons, Lambo Reventons, Ferrari Enzos and a few others that you don't really express yourself individually by buying any late model cars. They are all, to some extent, empty commodities cashing in on past glory -- most egregiously Ferrari 599 "GTO" and "California", Porsche 997 "Speedster", Ford "GT", Rolls Royce "Ghost", Aston Martin "Vantage" and "Virage", etc.) I hate to say it, but maybe our primary trait as car enthusiasts is that we're gullible romantics.

While I am drawn to beautiful, one of a kind cars, I don't regard Gallardos, F430s, Bentley CGTs, etc., as examples of those. OTOH, I see a 330 GTS and I think that the owner has both wealth and discerning taste. But, he wouldn't be in your stats.

 

As always, insightful and well stated.
It in part reminds me of a thread by Jerry a little while back about Ferrari selling to middle vs upper class.
I suspect that "borderline rich" people are more inclined to "prove" themselves, or display wealth more so than the truely wealthy. I think people of very significant means have no desire to prove themselves to others with an automobile, and do it in many more impressive ways instead.

The stats don't take that into account.

A Kennedy driving thru Cape Cod in a Lambo would come across as "lowering" him or herself and quite gauche!

 

I think the days of excess are over and many people prefer to be more low key. Nothing says excess like a flashy car.

 

Plus, Ferrari always sets their prices for new cars just above the threshold most people are willing to pay for a fun car.

A new 458, with just a few options, will cost $280k or so.
This is quite a bit more than a new Mercedes SL, Porsche, BMW M-series, or Corvette.

And used Ferraris scare off regular people with all the expensive maintenance stories out there.

So, the person that buys their first Ferrari really has to want one.

 

I agree. This is why so many owners tell very few people they even own a Ferrari.

 

If anyone has read "The Millionaire Next Door" they comment that many higher-net worth individuals buy cars by the pound, which is actually a way of saying a large percentage drive Chevy Suburbans or large american sedans.

Also keep in mind for many individuals with $5M+ net worth the majority of that is tied up in illiquid assets. Would you sell a percentage of your small business to have the cash to buy a Ferrari? Neither would they. Would you sell a rental house that brings in $1500/month to buy a Ferrari? Neither would they.

Another thing to remember is that even if they are a car enthusiast, and even if they have the cash sitting in the bank, some percentage simply would not buy something seen as being so ostentatious as a new red Ferrari. It is perhaps much safer socially to splurge on something like a black M-B CL65. Super fast, super nice car that avoids a stereotype reaction about red sportscars, mid-life crises, and gold chains.

Even with lots of money, IMO most still buy what they consider to be value. I know one individual who is worth well into the hundreds of millions. He and his late father have collected over 300 classic cars kept in a 100,000+ sq ft showroom on their estate. When he drove me through on a tour, every story was about how a certain auction was for muscle cars and the Dusenberg we were looking at was way below value so they bought it that day. Or another catering to pre-war vehicles had a perfect '57 T-Bird that didn't have much interest so they jumped in and bought it. You get the idea. One of his last purchases I know of was a 550 Barchetta, a car he has always wanted but thought it was way too expensive when new. Now at $160k he thought they had bottomed out and bought the best one he could find last summer. He drives either an S-class or a Yukon most of the time, but could literally buy any vehicle on the planet he wants as a DD. To my knowedge he has never bought a new exotic however.

 

Excellent post by BF. And I'll add a few. I know a man who just sold his company for half a billion (with a B) cash. His big splurge? S63 AMG.

His son (in his 40's) drives a 5 series. When a friend asked him why he didn't get a 7 series, he said with complete modesty: "If I did that now, I'd have nothing to look forward to." (old money)

But the point is if you buy an Fcar, you either like the Bling aspect or the engineering. (or both) If you just want a good car, there are plenty of fine options out there. Many rich people are very conservative with their money. See also the millionaire next door.

Also just because a guy is worth $5 million does not mean he has $5 million cash. Most millionaires have their worth in equity in their home or business. One of my friends is worth about 6 million and pays himself just 125k a year. The rest he leaves in the company to grow it.... which is a FAR better use of capital than an exotic.

Edit: sorry tundraphile (one post above) was reading my mind but he must type faster, we basically said the same things at the same time.

 

I have quite a few friends who could easily afford a new or near new Ferrari. They ain't interested. In fact, they all drive pretty mundane vehicles. One has a ten year old Toyota minivan, another a Toyota Solare, still another a Ford Explorer. You get the drift. They spend as little as possible on cars and focus their finances elsewhere. I understand myself. While I have a weakness for fine sportscars, our DDs are Toyotas.

And like Bullfigher said, there are many wealthy people who buy pricey, but well used vehicles after the depreciation hit has been taken by some dummy who financed all he could to buy new.

Dave

 

The funny thing is you read all the time here "You would be crazy to own car X without a warranty". Most cars hit the gentle slope of their depreciation curve about the time their warranty runs out.

If you can buy a six year old car for 30% of MSRP, a ton of stuff has to break out of warranty before it would be cheaper to buy a two year old car for 75% of MSRP.

 

Years ago I read a book called something like "The Rich and the Super Rich." They interviewed hundreds of people in both catagories and came up with some general tendencies of each.

the "rich" aka nuveau riche like new cars to show the world they have "arrived".

Old established money buys old cars (and trucks). They are telling the world they are "old money" and not one of those upstart whipper-snappers that are still wet behind the ears. they are more likely to buy a classic car.

We had a friend in the Denver Ferrari Club that drove a Mondial. He was really from old Denver money and did not care what anybody thought about what he drove. he had a plane and was a member of Cherry Hills. He bought the car off the showroom floor when it was new. he liked driving the car and saw no reason to buy a "new" one. He came from an "old Denver Family."

He was the only one I would consider old money in the Ferrari Club. the rest of us were pretty much the nuveau riche who had to show each other who had the lastest model with the newest features.

Thanks to the slow economy there are fewer nuveau riche being produced. And it is out of fashion currently to flaunt your wealth. An older Fcar is more accepted today than a new one in many circles.

(old money likes old houses while new money likes to build new houses with all the bells and whistles).

 

Majority of those wealthy are extremely illiquid. They are asset rich but cash poor. You are only worth what you can produce in cash tomorrow.