New Money Chasing Old Cars

If the collector-car market were a cappuccino, its frothy foam would spill over the sides of the cup and cascade to the tabletop like a miniature Niagara Falls. Is there a major auction that doesn’t set a few world records? Even Toyotas are now worth more than a million dollars.

Well, not all Toyotas.

As you might expect in this time of valuation acceleration, my inbox is full of questions, many similar to this one from David Cohen, of Malvern, PA.

Keith, it’s been a long time since we spoke; I’m so pleased your publishing efforts have succeeded so well. I truly enjoy reading both your publications.

As someone who is in the business, I am somewhat confused, however, at the numerous inconsistencies in your auction report valuations and your price guide. For example, in the May issue of SCM, on page 68, your reporter states that Lot F236 — a 1955 Jaguar XK 140 roadster — is a 3+ car and sold for a market-correct $127k. Yet, in your price guide, a #2 condition car is $65,000–$95,000. I believe your valuation guide is much closer to fair value.

I must say it does call into question your analysts’ reporting and valuation opinions. I realize there are always anomalies in this type of endeavor, but I must say they happen frequently when you compare the analyst report with the price guides.

Care to shed any light on this topic?

Let me respond. The current market is more divided by selling venue than at any time in my memory, especially at the top end. Auction companies can sell some cars for prices far and above what most private parties — or even dealers — can achieve.

This leads to situations where what seems like a fair buy at an auction would be twice retail at a private sale.

Alfa Romeo Giulietta Spiders that I think are $80,000 cars are selling for $140,000. Ferrari 365 GTCs that normally trade in the $600,000–$800,000 range bring over $1 million. Mercedes 190SLs that I think are $150,000 cars on the best day of their lives break the $200,000 mark.

There are significant factors at play here.

First, collector cars have been too cheap for 20 years, beginning with the crash of 1990. At the peak of the last car market in 1989, the Dow Jones Industrial Average made news when it crossed the 2,500 mark for the first time. Now, it is six times higher, above 15,000.

While the Dow has been rising, the collector-car market has been stagnant. It has only been in the past four years that we have seen significant appreciation in old-car prices.

New money — big money — is flowing into the collector-car world. Some of it is from newly minted overseas billionaires. Some of it is from those of means who have heard “how hot the car market is” and decided to funnel a few million into this area, as many other forms of investment are offering meager returns.

And some are seasoned collectors, who are selling cars at the new prices, then taking that money and putting it right back into the market — often using the 1031-like exchange provision to defer taxes.

Only the best

It’s the good stuff that’s bringing the big money. Consistently, the highest individual sale prices are made at the showcase auctions in Monterey, Scottsdale and Amelia Island. As you would imagine, nearly every blue-chip collectible on offer is brilliantly presented, and includes a thoroughly researched history.

There is great competition among consignors to secure a spot at these auctions, so the companies can afford to be picky.

There is no shortage of liquid assets backing top-tier bidders’ paddles. Someone buying a $10m car is spending much less of his net worth than someone who is stretching to buy a $100,000 car.

There is little concern about paying above market today. Why? First, these buyers are investors, and they are used to “betting on the come,” sometimes for five or 10 years, as they wait for an investment to pay off. Paying $250k “above market” for a $10m car is chump change if you expect the car to be worth $20m in 10 years. Also, auctions offer the assurance that if you “pay too much,” in fact, you are paying just one bid more than the underbidder — so how far wrong can you be?

Second, these buyers are used to winning. Most expensive cars have singular qualities, including unique histories. If a buyer misses out on one, he can’t just go find another one. The auction companies excel at bringing together “one-off” cars that are hugely important — and getting wealthy collectors to compete to put the car into their garage.

After all, it’s more satisfying to own the 1968 Ford GT40 Gulf/Mirage Lightweight that RM sold for $11m in Monterey last year than to sulk around saying, “I was the underbidder, and damn, I’m glad I didn’t spend that last $100,000. Come look at the empty space in my garage.”

Priced fresh daily

Let’s come back to the variance between the SCM Price Guides and auction prices. There was a time not long ago when updating a classic-car price guide could be done once a year.

For some cars, especially second- and third-tier cars, that’s still true. A nice MGB has been $8,000 to $12,000 for a decade. A first-gen 383 Road Runner is a $30,000 car, and is unlikely to change much.

But with limited production cars and increasing demand, no printed price guide can keep up with the market for exotics. Even for lesser cars, such as Ferrari 250 GTEs, what was once an $80,000 nicely restored piece has become $300,000 “last chance to own an Enzo-era V12.”

Add the feeding frenzy that comes with a high-end auction, along with an influx of wealthy investors new to the market, and you get an auction room where the $95,000 XK 140 referred to above is a “good buy” at $127,000.

The constants in the SCM Pocket Price Guide are the production numbers and the collectibility rating. A B-rated car will always be less desirable to sophisticated collectors than an A-rated one. Let the SCM guide be just that, a guide. Let the underlying quality of the car, and its history, determine just how long you want to hold your paddle in the air.?