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

This is what I've been posting from the very beginning.

Major world events is what bring everything down like it did the last time around. At which point if a Dino becomes 70 grand again the majority of people will be too worried about finding food , clothing and shelter.

This is why I'm so against these people that look forward to seeing a car market crash , the overall financial pain will lead to your family members, kids, neighbors etc .... Not just a guy that over spent on a Dino.

At which point, all the naysayers and doomsday advocates clapping and celebrating they were right probably won't be able to pay for their internet connection to post it

 

well said. that's one of the points ive been trying to make for the past year. its unfair to say cars are in an exclusive stand alone bubble. the world is a bubble. the world can certainly fall apart. but f40s arent going down 50 percent unless sp500 goes down 50 percent first. and to the decoupling argument - its possible but who knows. its been 25 yrs ive been reading about how the advent of the EURO wld allow Europe to decouple from the USA and the same for asia. In times of stress the US continues to be the flight to safety trade. IF cars hold up well during an sp500 down 50 percent its likely other hard assets will also do well. I wld articulate it is a decoupling of hard and soft assets. especially since the hard assets are a hedge to inflation. We get deflation or stagflation, all bets are off.

 

Not really. You know what stock market people do when the market goes down?

Buy more stocks!

It's exactly what you would do if car prices went down, as exemplified by your thread titled "WHAT CARS WILL YOU BUY WHEN THE MARKET CRASHES."

People who took their gains off the stock market table and bought cars did so in 2014 and thereabouts.


And all of this assumes that it's a usual dip in the stock market cycle and not another major global recession.

 

exactly !!!!

 

+2

 

I've been thinking about this during this tread and others.


Also calling cars a "asset class" seems a bit overreaching. They are cars, if u make a good buy, nice you got lucky. Congrats.

 

well the majority of new cars of course are not an "asset class", but some blue chip classic cars are every bit an asset class such as a Pollock or say a Stradivarius.

 

Just before last decade's crash one indicator was that Oil tanked seriously, sound familiar?
Also, more cars at dealers than PP

 

It's hard to say, it went down from around $100 to $28 between 1980 - 1988 (80's Go Time)

It also went down from $30 to $18 between 1998-2000 (90's Dot Com Boom)

Many argue that low energy prices are a net positive for the economy. (assuming it's not tied to a black swan event, say financial crash)

 

Your right

But a 308, 512TR ain't a Pollack or a Strad, that's my point. People are defining production cars as a "asset class" when they are just 20-30 year old cars. Nothing all that special. Irrational exuberance

 

So one person is saying the car market crashed because oil spiked and another is saying that the car market crashed because oil dipped.

You gotta love it.

 

Good point! Oil prices are a double edge sword.

With crude oil prices down sharply, enthusiasts in Houston and Dallas feel a bit poorer and a lot more insecure about their jobs and house value. Meanwhile, lower gasoline prices can give a slight boost to the economy and sense of things being better for those elsewhere in the country.

 

very true LV Eric -- agree 100% - newer cars with high production numbers (or Mondials) are not asset classes...but after say after 30-40 years, I would argue certain cars would follow at least inflation after they hit their natural bottom; or rare time capsule examples would qualify.

I think even the 308 or TR are asset classes (depending on the condition) I make no judgement if we are in a bubble or not, we could be in a period of irrational exuberance. The only oddity I've seen is the stance some take on these boards, the desire for a crash for no specific reason. Do you feel a 308 or TR say in 20 years will be worth the same today?

Cheers

 

I'm not disagreeing with you but that wasn't my point.

My point is that for all of the armchair experts here, people can't even agree on what happened with one simple factor like oil, let alone understand it. One person says oil went up sharply and others agree, citing macro factors, and that caused the crash and then someone else says oil went down and that caused the crash. Remember, we are talking about the same crash.

It goes without saying they can't both be right.

 

Great post-Sherpa, what ultimately interests me more is the motivations for those that 'desire' a crash. I'm not talking about those that are just 'shooting the breeze' prognosticators, you know "Are we in a bubble?" "Oh yeah, we are, what you think about them Lakers?"

I'm talking about folks that have no skin in the game (like me) coming here and posting they are 'wanting' a crash. I can understand if I came into a large amount of money and were seeking to start my collection (seeking an attractive point of entry) - but when I've asked point blank for those that seek a crash what the motivations are...well let's just say the sound of silence was deafening.

It made me sad to realize what that implied on those poster's characters.

 

I also detect a degree of schadenfreude in many postings.

 

Worlds events can percipitate an overall crash, but many crashes in specific asetts structuraly happen because markets overreach in terms of price and avaialable inventory/demand.
Oil did not crash because global economies were crashing, it crashed because supply and price were way ahead of demand, and when the lag to reality hit the change from overreach/inefficiency was brutal.


In an otherwise stable economy the same can happen to cars.

We can also see that in a poorly performing economy, cars might be an alternative asett, therefore their prices can continue to rise, supply grow, eventualy the same inefficiencies of supply pricing to reality as we saw with oil take effect.

The question then is are at or approaching supply and price ahead of real/sustainable demand for cars. Lots of factors here, what really are collector cars, who is buying and why. The signs that otherwise mass produced cars such as 308s and many 911s are flying might indicate we are at excess, or maybe there are just more buyers and no new classic product so some vehicles get elevated.

As we saw with oil, hindsight is 20/20. My sense, my gut instinct tells me that soem cars have been hyped, ad are due for significant 20+% corrections, others have firmly moved into the cars as art class and are in their own orbit and some are firmly collector cars which will recorrect by less than 20% or go flat.

When i see an 8K mile LP5000 perfectky restored sell for an alleged 1 mill, ie 500k over, it tells me there is speculative bubble frenzy lurking more than educated buyers. These sales like the 599 stick may be anomolous, or a sign.

 

I think we agree.

And yes having seen a few car market cycles we can say with relative certainty that 308s and Trs are going to be worth significantly more somewhere in the next 20 years even in current dolalrs. These cars may be mass produced but after 20-30 years they are already seen as having various classic attributes moderns cannot approach, and are relatively rare enough to have firmly moved out of old car status to classic or near classic..

The question is will the price move downward from July prices somewhere in the next year or two or 3 and by how much, ie did the market for such cars overreach and are headwinds of various natures affecting it.. I would say yes, we are seeing that already. Is it a breather, a flatening, or a bigger recorrection.

 

I personally do not seek a crash. I do not mind about crash or not, although I do believe that there is a bubble presently (all those sharks ... ). Because I have decided to just sit on my money and buy nothing. If the crash is not so shattering that the whole financial system collapses, then this will turn out as a quite safe strategy.

I have another theory. All those insisting that there will be no crash and that there is no insane inflation in classic car prices, they actually are fearing that they might not cash in in time and with the anticipated profit. Nerveous sharks, perhaps .

By the way, I love the sales speak "garanteed value increase chance", from a German dealer, who offers his cars at prices, which are extrapolated into a two or three year future (assuming that the bubble keeps on bubbling) . Cash for him today at the price of a (optimistic) tomorrow .

 

Bingo! I think most members here are like you BJJ. If a crash happens, it presents a buying opportunity. If we are in a bubble sit and be happy (or sell). I have not seen anybody deny that we could be in a bubble, only that the current rise in cars also mirrors global macro peaks as well (sans China of course)

Be well.

 

Wow. I sat here and read the entire 13 pages of posts. There is some seriously excellent discussion here, and I learned a lot about some economic history that I didn't know before.

 

Yes! Let me try to clear up the confusion surrounding cause and effect related to crude oil prices versus crashes in classic car prices. There have been 4 crude oil price crashes in recent times and some posters here may be referring to different ones.

Here is a link to a web site (InflationDatadotCom) providing historical crude oil prices in nominal and real terms providing an explanation at a quick glance. Although the data is for a crude oil other than WTI or Brent (customary official measures) it is close enough for talking purposes.

InflationData: Historical Oil Prices Chart

Oil Crash #1- The InflationData chart shows the first peak (real terms) in Dec 1979 ($116.98/bbl). Meanwhile, EIA data for monthly average imported crude oil price (believed to be a more representative indicator of world oil price) indicates a peak in real terms in Jan 1981 ($106.17/bbl). As the graph shows, there was a gradual erosion in nominal and real oil price until Jan 1986 when prices fell off the cliff and the first oil bust was born. Thus, this incident predates the 1989/1990 classic car crash by 3 or more years.

Oil Crash #2- This was really a 4 month price spike that happened to occur during the 1989/1990 classic car crash as a result of the first Gulf War (Aug 1990). Both InflationData and EIA place the tip of the spike at Oct 1990 at $61.36/bbl and $58.74/bbl, respectively, in real terms. Thus, this mini oil price surge and crash occurred very late in the 1989/1990 Classic Car Crash and is probably more coincidence than causal.

Oil Crash #3- The year 2008 contains a number of interesting moving parts that separately or in combination could have triggered a collapse in the Classic Car market. First, related to crude oil prices: InflationData puts the peak crude oil price in June 2008 at $136.31/bbl while EIA says July 2008 at $139.03/bbl. After this point, crude oil prices fell off a cliff and hit bottom in Dec 2008 at $40.12/bbl (EIA, real basis). Meanwhile, back in the Classic Car market, a check of Hagerty for a number of special interest models shows that the market generally plateaued from Jan to Sept 2008 and then fell after September 2008 and into 2009. As another point of reference, the stock market was in bear market territory during Summer 2008 and didn't hit bottom until Mar 2009. Thus, for what it is worth, the peak of Oil Crash #3 preceded this downturn in the Classic Car Market by a mere 2 months and coincided with the downturn for 3 months.

Oil Crash #4- The current oil price collapse began in earnest about June 2014. So far, this puts us about 18 months into the oil decline with Hagerty car values still near peak. Time will tell how this next cycle plays out.

Conclusion: oil prices appear to have only a minor impact (correlation) on overall Classic Car Prices except for those of us in the industry.

Hopefully this information will shed some light on the oil factor.

 

EXCELLENT POST! Thank you!

 

x2

 

yes i do adjusted for inflation, or if i'm wrong-and i have no problem being wrong. I dont think they will be a tonne more $(adjusted than now) so if they are a "Class" up or down in value it will be very thin-either direction. To many units, watered down market-not a proper investment "class" Like Strads where they are 100's of years old and a very small population. (I almost got a Strad as a gift from a customer in 93-imagine that-wow!!)

This is more of a debate of defining a "Class" than actual cars. I believe the concept pf "Class" is a wonderful marketing tool used by auctions, sellers and dreamers. Makes it easier to have a customer write a $2M check for a "asset class" than a car. jus sayin'

I look at 99.99% of a cars as cars. Sure i've bought cars hoping to make $ and I have. But to put them into proper well defined asset classes is overreaching.


respectfully

eric