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

I was 10 at the time but from what i remember and from what i read, it was not a slow down. Prices were half of what they were within months IIRC.

When it crashed, everything crashed. F40 went back to $250k. Lussos to $150k or less. Dinos, 911 RS etc..Boxers that had reached $500k were back to less than 100k.


Some of the similarities :

.New auctions every other month and new auction houses.
.Same cars being sold over and over within years or months.
.Lot's of new players buying.
.Dealers buying more than end users (im not 100% sure here..but it seems dealers are buying a lot of the big stuff).
.Mass Media press talking about it as the new investment to make.


.I keep hearing it's different this time because a lot of buyers are not financing or are so wealthy that even if their asset goes from 100 to 20, they wont need to sell.
.That there are much more potential buyers for the same number of classic cars.


I think the truth is somewhere in the middle. My uneducated opinion is that some of these cars will come back down (Is a Dino really a $500/700k car??) but some are gone for good (SWB, PF cab S1, DB4 Zag etc..).

 

The escalation was triggered by "Enzo passing" and all of a sudden a 'glass 308GTB was $115K

It crashed when oil priices went thru the roof, by OPEC, and it took the bloom off of low mileage high performance cars across the board.

While today's values are pretty high as money seeks safe haven outside of the stock market, it is "different" in that today's vintage Ferrari values are more viewed as "automotive art".....and as "art", (say, versus a painting) these outrageous valuations are really not so high.

 

There is a huge amount of speculation today, that's for sure. Particularly among the the cars people perceive to be important that actually aren't. I think blue chip stuff is probably morphing into some type of legitimate asset class (moreso than it had been historically) and that is one variable driving some derivation into less fundamentally sound cars. That's one dynamic in addition to being an investment alternative in a low interest environment... and about 10 other big macro components.

I was young enough to be playing with action figures at the time, so I'm far from an expert in the '90's bubble, but I do know that there was a huge amount of credit being leveraged in the 1989 hysteria. And floodgates opened in Japan which drove demand. It's also important to note that new cars were receiving a lot of interest too:

For example, a $65k MSRP 328 GTS selling for $165k is the equivalent of $130k new car selling today for $320k, a multiple of ~2.5. That puts a $375k F12 at over $900k. The speculation today isn't impacting new cars, which is a major difference in my opinion.

That being said, I think the big danger is when macroeconomics change and new investments present themselves as the car market is +5000%. People will consider taking profits and moving on... and when they paid $200k for a '70 911 they might be in for a rude awakening, unlike the guys that paid $3MM for 275 GTB.

Unlike the 90's, it seems as there is a legitimate class of cars that are in fact collectible and then the rest. Some of the rest may in time do well, but a lot will not. That's the similarity between then and now, and it comes down to supply and demand. No way around that!

 

Personal view (and this thread probably could be tacked onto many other bubble related threads) is that anytime people point to "this time it is different" we are in trouble.

Cars aren't a safe haven since they have had massive volatility in the past. They aren't even counter cyclical. The cars caught up in the price upswing don't all fall into the high art bucket either, so I think that may be a hopeful way of looking at it. In the 80s a GTO was also art rather than function.

We shall see...

 

I think things are very similar now. All I know is that I passed on an F40 at the time for $240K. I'm an idiot. Prices will correct, possibly quickly. When it happens, I still won't know when to pull the trigger on something, so I'll probably miss out on the next wave, too.

In addition to these points, many rather mundane cars are hitting incredible prices. That's probably a bad sign.

 

I was there.
It was quick as opposed to a slow drip. Essentially the prices carried on drifting higher despite the buying thinning out... then it started to become noticeable that buyers were thin on the ground. Prices stagnated as sellers held out for the return of the buyers.... but they didn't return. Once the buyers got the sniff that prices weren't rising they sat on their hands and suddenly there were NO buyers and only sellers left. Some of the more distressed sellers sold to the more optimistic sellers who speculated that they might be able to flip the distressed cars and there was churn-over amongst the optimists.... all the while the real money was on the sidelines. Before long it was obvious to the brighter sparks that the taps had been turned off and those brighter sparks used that last opportunity to offload, by which time prices had turned obviously and aggressively south. It was a one way ticket from there.
It affected the whole market, the top end stuff dragged the lower end stuff back too.
Its ALWAYS "different this time"..... (don't be fooled by this - its never different, its human nature and that has remained the same for millenia. These patterns will always repeat)
There was no particular buzz in 1989 - it was new, there hadn't been a classic bubble before. Everything was exciting and optimistic... until it wasn't.

Frankly it was a typical mania - study this chart for an expectation of what prices will do and how rapidly they will move. (I will leave you to speculate on where we are on the curve presently)
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The key to not missing the bottom is similar to not holding through a top -- avoiding the need to "maximize" anything.

If F40s drop sub-$500k I will buy one. Period. I don't care if they drop further to $250k (or if they might do so) because I know I cannot predict a bottom.

Fear of when to pull the trigger, however, is what causes these crashes to become spectacular. The buyer universe dries up even as the cars pass through what could likely be called long-term "fair value"... the human psychology that causes people to keep buying as prices go up, also causes the excessive selling (and drying up of buyers) when prices are falling rapidly.

 

There were many factors, in the early 1990's the global economy was in turmoil, Russia collapsed, Britain struggled, the US, credit tightned up, and those that needed money, sold whatever they needed to sell including cars, real estate, etc. to generate cash thus driving prices.... When looking at valuations, look beyond the asset, and more at the influences...I picked up some good deals in the early 1990's

 

There was a ton of Japanese $$ chasing high end cars in the late 80's, but as soon as their stock market and economy slumped, the $$ went away, assets had to be sold. First to get dumped were the collector cars.....

 

This is key.

When I was in my late teens and 20's at the height of the last stock bubble.. I legitimately thought "it's different this time with the internet and internet companies". My Dad told me "They say that every time". While the internet did stay and its' use was as predicted, many many companies went bust.

I was wrong. And I never forgot my BS prediction that my father was correct. This is no different. Watch for alot of these current internet darlings as well. Pop pop pop when the money runs out. You have alot of money chasing eyeballs and no fundamentals. The recent lackluster IPOs have pointed this out. Remember when it costs $1500 to start a website or $10,000 to build an app and be off and running.. why are VC's throwing millions at it? Similarly, why is a Porsche with THOUSANDS made worth such a high price? I suspect in the latter the boomers that coveted it in the 90's are buying. When they need $$$ for retirement the values will drop. Also be careful of "the rich have money" argument. They never feel as rich when their portfolios get hammered by 30% or more.

 

Very quick.

The company I worked for was sitting on a lot of expensive inventory. I used to say if you were very quiet you could hear it depreciate.

 

The Ferrari / Exotic market crash of the 90's was really in 91 - 93, with slow recovery in 94-97.

The main cause was the financial mess of the early 90's melt down. that constricted the excess cash supply of the Yuppies - and it was more an emotional reduction. as supply way out stripped demand - prices plummeted.

Remember the price hike in vintage Ferraris- the Enzo Era cars were the ones that really took off... and the 308, mondials, TR's etc... all went for the ride. the F-40 was an anomaly as it was the last car - that Enzo introduced / had any remote responsiblity for....

that is what drove the bubble to huge numbers .... but as stupid money gets into the market and the enthusiasts get tired becuase they cant afford anything any more, then the market contracts - and those who were leveraged faild.

I was 21 in 1990, and remember the stupid rise in prices post Enzo Death.

 

provenance always sells well IMO bubble or not: Janis Joplin's Porsche sells for $1.76 million - Dec. 10, 2015

Fangio's Ferrari 290 MM should top $28 million at auction

 

It's not just cars, collectibles generally go up and down in lock step. My business was dealing in rare coins beginning in 1972 and I retired in 2013 so I saw many cycles. In 1990, coins and cars collapsed the same month! Factors are never exactly the same, but cheap, easy money is one constant in collectible speculation. Generally, these markets get going when true collector demand is great enough to make prices move higher somewhat. This entices others to "buy now" before they go higher still. It also discourages sellers who then don't want to sell an appreciating asset. This is when the speculators step in and true collectors stop buying and start selling. Typically, prices always go higher than anyone dreamed possible. One common sign the end is near is when collectibles are all in weak hands i.e. owners just looking for a quick gain to pull the trigger. Turnover increases, prices stagnate. When the end does come, it is always dramatic. Sellers pile into the market trying to cash in before prices go lower but potential buyers won't buy falling swords. Often, sellers keep lowering prices but never quite low enough to move the item and they would have been better off just taking their lumps early on. Years ago, I found a 328 GTB I used to own in the FML from 1990 to about 1993. The owner kept lowering the price, but never quite low enough for years. Eventually, it went off the market and I bought it in 2001 for about 1/3 of the peak price.

One thing you always hear about collectibles in hot markets is "the aren't making them any more!" Obviously true, but they overlook there is always competition for the money. For instance, maybe someone was thinking they'd like to buy a nice 328 for 50K but by the time they get serious, they are 150K. All of a sudden, a condo in Florida looks like a better choice.

Dave

 

Not sure oil prices would sway the exotic car market.

I was still in college, so had no money in the game (and most of it was invested in beer.)

But I think you're right, these cycles follow a familiar pattern. I visited a well-know exotic car dealer's showroom and "secret warehouse" last month where they keep the overflow inventory. I can tell you for certain that there is no shortage of near-perfect 328s, 355s, 360s and F430s looking for buyers. I think buyers are perhaps a little thinner on the ground than they were six months ago, but ... all just intuition and hunches at this point. But there is a lot of inventory.

I am very interested in picking up another 308 GTS, but fairly confident 2016 will bring a much better market for buyers.

 

I agree. That makes absolutely zero sense to me.

First, it's not like if you own a Ferrari you care that much about fuel prices. Secondly, if you did own a Ferrari and were concerned about high prices of fuel, wouldn't you just drive it less?

These are toy cars. No one uses them as basic transportation. Most get hardly any miles. I bet that most people spend a tiny fraction on Ferrari fuel as they do on their daily drivers.

Besides, what happened when oil rose to over $100 per barrel a few years ago? Record Ferrari sales across the board, especially in Texas. If the market crashes now, I bet most will say that low oil prices played a significant role.

I can't answer the OP's question because I was a kid then and didn't know what cars cost. I didn't even know what a 250 GTO was.

 

Will you be paying all cash or financing? and why?
http://www.ferrarichat.com/forum/ferrari-discussion-not-model-specific-sponsored-algar-ferrari/507479-financing-2.html

Will you put miles on it or try to keep miles low...and why?
http://www.ferrarichat.com/forum/ferrari-discussion-not-model-specific-sponsored-algar-ferrari/501177-why-so-many-low-mileage-ferraris-out-there.html

 

What goes up will come down.

Some people just don't believe it.

 

your looking at it from a cost of consumption standpoint.......

likely many Texas oil workers / players hurting as we speak....

 

Right. So then wouldn't a rise in oil prices lead to a boom in the Ferrari market, not the opposite as BigTex indicated?

You're making my point.

 

i agree that i agree with you......

the oil shock is often credited with inducing the 90s recession but lets not forget we were coming to the end of the longest non war expansion, the fed was raising rates and the S&L crisis.

energy production was no where near a component of the economy that it is today back then.

energy, energy jobs has been a major player in this Obama "economic" recovery.

it is unwinding as we speak....

 

I think that the federal reserve with the 0% interest rate policy has created this bubble in the car market as well as many other bubbles that are currently happening. Including the stock market and real estate prices. Again. Here is a good video about the last real estate bubble predicted 2 years in advance. The 37:00 mark will save you some money from seeing Brad Pitts new movie as Schiff explains in 2 minutes what happened.

https://www.youtube.com/watch?v=jj8rMwdQf6k

 

Both the run up and the crash were quick. 1987 plenty of v12 2+2 Ferraris for $22k. 1989, the same cars were over $100k. Summer 1989 everything was high flying. Summer 1990 the sell off was on. I remember being at the Chicago Historic Races in 1989 and it was a big party. The following spring I sold my Citroen SM at an auction and you could feel the desperation. I was 19 at the time, but I was very aware of what was happening. My dad had 11 cars at the time and while most people remember the Ferrari run-up, it wasn't just Ferraris. I remember ghost Ghiblis in Hemmings to try to keep prices up. B.S. brokers selling cars they didn't have etc. My dad's roach Healy 3000 went from being a $3,000 car in 1987 to $7,000 in 1989. He was a car guy and as a result didn't see most of the cars as anything other than cars. As a result, he sold most of the cars for a small profit. However, he did get burned on a 308 gts q.v. I bought a Citroen SM in May of 1989 for $2000. I was offered $4,000 for it in July but didn't sell it(dumb on my part). In May 1990 I sold it for $2300 at auction. It was a great lesson and I've never forgotten it. Cars, houses, jewelry, etc. MAY be assets, but they aren't really investments.