How quickly the tides do turn. Only six months ago, in my March SCM column, Dashing Euro Dreams, I wrote, “As the dollar had declined over the last eighteen months, the asking prices of American-based collector cars suddenly look like bargains” The lead time on my column is thirty to forty-five days, and as I was writing of the weak US dollar, the Greek government was rushing into insolvency. In March the financial tides began to sink the Eurozone in a flood of Greek debt. Since January the Euro has dropped from 1.€ = $1.44 to 1.€ = $1.18, a 26-point drop. By the time the September issue of SCM hits your mailbox, the Euro could be heading for parity with the U.S. dollar, depending, of course, on the direction of political intervention. The PIIGS want to be fed Economists refer to Portugal, Italy, Ireland, Greece and Spain by the unflattering acronym of the PIIGS, and all share multiple levels of crushing sovereign debt. The Greek crisis—or more properly, Europe’s sovereign-debt crisis—began years ago, but it came to a head in March and April as the cost of Greek two-year bonds briefly soared to over 10%, while Portuguese and Spanish debt were downgraded and Italy came worryingly close to a failed bond debt auction. What could have been a €60b (yes, billion) problem in early April became a €100b problem in mid-April. Chancellor of Germany Angela Merkel’s playing for time backfired, and by May 10, the European finance ministers had to meet in Brussels to produce a bailout package worth up to €750b ($920b U.S.). Yes, dear readers, almost a trillion dollars. The American taxpayer has, through the International Monetary fund, guaranteed $200m of this mad-money that Greece will almost certainly never pay back. So, the U.S. taxpayer will likely get stuck with a $200m bill to help the Europeans bail Greece out. Not all is gloom in the Euro market As markets and currencies swing, the United Kingdom has long been the clearing house for importing collector cars into the European Union. While the Euro and Pound Sterling may be down, the good news is that SCM contributor Martin Emmison’s law firm has just won a Value Added Tax case against the UK taxman. If you’re importing a car which qualifies as a “collector’s piece of historical interest” that is 30 years old, or older, into the UK, there is no import duty and VAT will remain at 5 %. While no Morris Minors need apply, the best Ferrari collectables of the 1950s, 1960s and 1970s will qualify for the 5 % rate. There is no lack of offers today from Europe for the best-of-the-very-best. In any country, in any economy, there will always be those few who can afford the very finest examples, whether cars or art. No good deals— yet The iron law of currency movements is that what you gain on the upswing you lose on the downswing. So, as the Euro drops, collector cars should become cheaper to American buyers. But this hasn’t happened yet. Eurozone sellers now simply price their cars in dollars, not Euros, but this too may pass. If the Euro does indeed head for parity with the dollar, there will be interesting cars available at good prices—for those paying in U.S. dollars. Thanks to the Internet, we are witnessing what economists love best; the perfect market, where the flow of information leaves buyers and sellers equally well-informed. Meanwhile, back in the USA This column was inspired by the sudden weakening of everything in the Eurozone, the ongoing strength in the U.S. Ferrari market and an email from a very long-term client who owns a sizeable Wall-Street-based company. That client wrote, “I bought my second Miura (the one you restored) for $16,000 in around 1977. The current trade is north of $300,000 giving “a 9% IRR (Initial Return on Investment) if you ignore holding costs of insurance, maintenance and storage. Run the numbers on my Daytona and it’s slightly better, but not more than 11 percent.” His email went on to extol the virtues of “car guys” owning any of the more collectable Enzo-era cars, and their long term emotional appeal versus more traditional investments such as stocks, bonds or real estate. A word from the Brits While speaking and emailing with dealers, brokers and collectors all over the world, I have noticed what seems to be a rush to quality as people put money into collector cars. As a British client wrote, “You might mention that some people are putting money in cars to avoid future inflation problems one could have with cash on both sides of the Atlantic, and the Europeans, against the (depreciating) currency (versus) appreciating cars.” The same British client wrote, “I don’t agree with the (Wall Street) customer who thinks cars should be for car guys and not investment. Cars have as much right to be considered investments as gold, stocks or real estate, art or antiques. He defeats his own argument to some extent when he shows the return percentages are/have been quite good.” This view is definitely gaining currency (forgive me) on Wall Street, as financial publications—such as the Wall Street Journal and the Financial Times—begin to acknowledge collectible cars as a distinct asset class alongside other collectibles, such as art. The flight to quality As always, the upside is in the Enzo-era cars, with the sole exception being the Supercars, such as the 288 GTO, F40, F50 and Enzo. While I’ve had several clients email about the collectability or investment potential of the new 599 GTO, it’s just another example of Ferrari spiffing up a model before it is retired. The 550 Barchetta was simply a 550 with a not-too-successful chop top, while the 575 Superamerica was a 575 with a recalcitrant folding top. While both have depreciated to where they are good buys, neither was “an investment” for the first buyer. Ferrari claims they will build only 599 of the new 599 GTO, but simply counting up the number of Enzos built beyond the factory’s stated 399 Enzos puts an end to the believability of that claim. The latest and greatest, if you can live with the depreciation There is no doubt that Ferrari will be building 10,000 cars a year, once the economy improves further, so with the exception of the eventual replacement for the Enzo, none of the newer cars have any upside or collectability. I will admit that every time I drive a 430, a 612 or 599 I’m awed at the sophistication and performance, but I’ve never found an open stretch of highway long enough, or clear enough, to begin to unwind a 599 to anywhere near its potential. While the 430, 612 and 599 are depreciating towards a greater affordability, the thought of maintaining or restoring the banks of engine control units and plastic bits 20 or more years down the road sends shivers down my spine. The cutoff for the Ferrari class at Pebble Beach has always been 1972, and with good reason. The Ferraris of the early Enzo era redefined both race and GT cars, and so the most-exclusive, most-collectable, and best-appreciating Ferraris have always been, and will always be, the early Enzo cars. They have certainly been a better investment in your garage than a stack of Lehman Brothers stock certificates were in the safe.