As I write this, most of us are working from home, practicing safe social distancing and hoping for a speedy return to “normal.” The COVID-19 pandemic has not only cost many lives, but it has caused severe damage to the world economy. No one knows how long it will be before life is “normal” once again.
In the overall scheme of things, the collector-car market is far from the most important thing in the world. But it is still important to us. So it’s logical for “Legal Files” to ask, what will this do to the collector-car market? What legal repercussions will there be?
Are cars selling?
Whether collector cars are selling, and at what prices, seems to depend on the segment of the market we are talking about.
At the upper end of the market, some deals are still getting done without interruption. Damen Bennion, head of the collector-car law practice at London’s Goodman Derrick LLP, is still getting high-end deals done even though he is working from home.
“We completed a transaction with a big Bentley, then we hurried up and finished a deal with a big Alfa before anyone changed their mind,” Bennion said. “We’re in the midst of a deal on a McLaren, but I think it will close fine.”
However, Bennion said, “New deals may be unlikely, or perhaps only at reduced prices.”
Matt Crandall, the owner of Avant-Garde Collection and a huge seller on Bring a Trailer, tells a different story.
Crandall sees deals in the $250k-and-under market getting done.
“Our Bring a Trailer views and watches are still very strong,” Crandall said. “I think there’s a lot of guys stuck at home with nothing to do, so they spend all their time on the Internet looking at cars for sale.”
Crandall reported good results on his Porsche 993 C4 race car and a client’s Ferrari 355 Spider 6-speed.
“The good results are only for the good cars,” Crandall said. “Anything that is lower-level is off easily 20% or more. Or virtually unsellable.”
High-end private sales stall
Steve Serio, SCM contributor and owner of Aston Martin of New England and Lotus Motorsports, has pretty much seen it all.
“At 60, I’ve lived through a number of dislocations — wars, recessions and the like,” Serio said. “But nothing seems to have knocked the car market off its axis.”
Serio said that the new-car market is pretty much nonexistent.
“New cars are a different thing,” Serio said. “You can’t sell them unless people can see them in person and test-drive them. When the dealership is closed, it can’t sell many cars.”
Collector cars are different, but that market still feels the punch.
Like Crandall, Serio still sees activity in the under-$250,000 world, but he’s had a handful of deals in the $2 million–$6 million range die.
In every case, the buyers “hit the pause button.” Some just want to wait this out and see what happens. But the main problems seem to be the travel restrictions and business closures that make it impossible to go see cars or get them properly inspected.
Pardon “Legal Files” for taking a bow here, but Serio’s clients are really smart guys who have taken to heart our consistent advice — never buy a car you haven’t seen yourself and never buy a car you haven’t had professionally inspected.
“I haven’t seen any fire sales on good cars, as the sellers can afford to wait this out,” Serio said. “But that hasn’t stopped the barrage of phone calls from bottom feeders who try to tell me why I should take a huge discount on whatever I have to sell.”
Never at a loss for words, Serio dispatches them with a colorful piece of his mind.
Alex Finigan, sales manager at Paul Russell and Company, thinks that the pandemic’s effect on the collector-car market is going to be huge.
Most recently, Finigan had “two over-$5 million deals stopped by the buyers.”
What Finigan usually hears is that buyers want to “just wait and see what happens,” but there is another, unexpected factor at play. Some buyers are backing away because they think buying a big car sends the wrong message during these difficult times.
“You don’t want to be buying a $7 million car when you’re laying off 2,000 employees,” Finigan said.
Finigan worries that it may get worse later.
“Many of the big collectors, with 50- to 300-car collections, are looking to downsize their collections,” Finigan said. “That’s on hold right now. But when they do bring their cars to market, it may be a surprise.”
Last, and definitely not least, Publisher Martin offers some words of wisdom.
“This will pass. We’ve had other big disruptors, like World War II. Just not in our lifetimes,” Martin said. “When this ends, will there be a lot of pent-up demand? Will there be more online-only auctions?
“It may not be the same as it was,” Martin said.
Cut and run
This isn’t meant to be doom and gloom. We’re going through an awkward stage, and we don’t know what lies in store. But people aren’t going to stop driving fun cars. There will always be a collector-car hobby, although we can’t predict how strong or weak it will be.
If you’re in the middle of buying a car, should you back out of the deal? That is a scary proposition. If you’ve already entered into an agreement to buy a car and you back out of it, you expose yourself to damage claims from the seller.
Say you’ve agreed to pay $4 million for an Aston Martin DB4GT, and you think that the market for the car is now $3 million. You don’t want to be upside-down by $1 million, so you try to renegotiate the deal.
“No dice,” says the seller. So you politely decline to complete the purchase and walk away. What’s the worst that can happen?
In a word, lawsuit. The seller files suit claiming $1 million of damages, which is the amount he will lose when he sells the car for $3 million. How do you defend that?
An act of God
There is a legal doctrine called force majeur, Latin for act of God. Under this theory, performance of a contract can be excused when extraordinary events or circumstances beyond a party’s control prevents the performance. The COVID-19 pandemic seems to fit the bill — can this save you?
That is highly unlikely. Force majeur is not a general legal principle. For it to apply, it has to be an express term of the contract. I’ve never seen a collector-car sales agreement that had such a provision, except to the extent that the contract can be canceled if the car is damaged before the contract is completed.
No doubt, we are going to be seeing a lot of litigation involving force majeur provisions in business contracts and leases, but that is not going to apply with collector-car sale agreements.
Nonetheless, buyers will try, and they will do everything they can to delay the inevitable.
Our court system is pretty well shut down right now, adding to the delay. So, let’s be optimistic and say that, by the time the case goes to trial, the market has rebounded, and the Aston is once again worth $4 million.
I posed the question to Brooks Cooper, who leads the litigation group at our law firm.
“Damages are proven at trial. So if the seller still has the car, he has no damages,” Cooper said.
So, is it okay to take your chances?
“That’s risky, because if the market keeps going down and the car is worth only $2 million at trial, the damages have increased to $2 million,” Cooper said.
If the seller sells the car to someone else for the $3 million, then the damages are locked in.
“It’s a $1 million case no matter what the car is worth at trial,” Cooper said.
If the market continues to decline, you can take a poke at the seller and claim he should have sold the car to someone at $3 million and mitigated (limited) his damages.
“That may work, but the seller can easily defend that by explaining that he didn’t think the market would go down more and actually tried to mitigate his damages by keeping the car to ride the value increase,” Cooper said.
Bennion suggests that the seller might be able to make the claim that his damages include the lost profit he would have made on a replacement car.
“The argument goes, if the buyer had paid the $4 million, he would have purchased another car at a similarly depressed $4 million,” Bennion said. “When the market rebounded, that car would have been worth $6 million, so the damages are now $3 million.”
Cooper agrees, but points out that it would have to be a special case to make that work.
“You can’t recover damages that are too speculative,” Cooper said. “To make that claim stick, you would pretty much have to be able to show that you had this specific car ready to buy at that value, and it appreciated while you were waiting to go to trial.”
Stay tuned. We’ll be seeing some interesting developments. ♦
John Draneas is an attorney in Oregon. He can be reached through www.draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.