Since the end of the Scottsdale auctions, the flow of emails, letters, and phone calls has been relentless. Half are shrill diatribes, demanding that SCM support the market. Any description of prices as falling, or buyers being cautious, is viewed as sabotaging the market.

The second half contends that SCM is soft-pedaling the truth and doing our readers a disservice by not pointing out just how bad things really are. They accuse us of whitewashing the trends of the past six months, and painting a happy face on an Emmett Kelly-style frowning clown.

In our opinion, reality lies somewhere in between these two points of view, as the collector car market is clearly undergoing a correction. But just as clearly, it is not suffering as severely as some other parts of the economy-judging by the results from the Arizona auctions.

The bottom Line

You'll find details from the Arizona auctions in this special, expanded version of SCM, starting on p. 56. In short, for the five auctions that occurred from January 12-18, results were down $25,566,099 from 2008 to 2009, a 15% drop. For those of us holding stock in Bank of America, or trying to sell vacation property in Florida, a mere 15% drop would seem like a major win.

Sellers were still embracing the market, as there were 110 more cars consigned this year-2,343 in 2009 to 2,233 in 2008. Only 158 fewer cars sold-1,726 in 2009, down from 1,884 in 2008.

Let's look a little deeper into the results. If you take Barrett-Jackson's $60.8m out of the equation (down from $84m in 2008), the total of the other sales barely moved, from $74m in 2008 to $72m in 2009, a mere 3% difference. But things have changed more than that.

Auctions are just the tip of the iceberg. As we analyze the overall results, and factor in what candid dealers and collectors are telling us, we believe the market has dropped at least 10% overall since last August for important cars, and more for less desirable ones.

The Big Three of values

We contend that there are three primary factors that go into the market's valuation of collectible cars. The first is confidence in the economy. So long as there is a sense that things are moving in the right direction, buying something frivolous like a collector car, or boat, or vacation home can be justified.

The second is availability of credit. If a collector pays for his cars in cash, as many do, and his access to credit and capital is easy, he is not worried about tying up a chunk of his assets in a car. He has faith he has access to additional capital if he needs it.

Finally, there is the quality of the object itself, in this case the collector car. Rarity is a prime determinant of value, as are historical significance and condition.

From 2005 through early 2008, we had a boisterous economy, with the Dow reaching an all-time high of 14,164 on October 9, 2007. Everyone wore smiles, and banks were loaning money to anyone who could fog a mirror.

Oddly, these two factors combined to make the third factor-the quality of the item-less important. Ferrari SWBs were in such demand that it didn't matter which one of the 122 was being offered; all that mattered was that it was for sale. Each "lesser" car that sold for a record price simply drove up the prices of the better ones. But everything that was for sale, sold.

Welcome to today

Now, we're in a perfect storm. The economy has been in a downward spiral for months and consumer confidence is extremely low.

Second, it is also nearly impossible to get credit for anything, let alone collector cars, whose value may be headed south. Even for the ultra-wealthy, buying a $5m car merits serious thought if that money won't be available to meet other, perhaps pressing, needs. For those with less than perfect credit, inability to get a loan for a $50,000 car through a bank or through home equity (quaint term, that, home equity) may simply mean putting off the purchase.

Finally, there is the quality of the object, or car, itself. The tanking of prices in the muscle car market for sub-prime examples over the past two years has been well-documented in these pages. The same phenomenon is now appearing with exotic, classic, and sports cars.

If there is any question about a car's history or authenticity, its value can take a major hit. If a car has the wrong engine, or has been color changed, or has been restored by someone who doesn't have a national reputation, it will have to be substantially discounted or it can become nearly saleproof.

More, if a car isn't "fresh to market" and has been shopped around, it will become difficult to sell. Stories begin to circulate, and buyers wonder what makes them so smart if everyone else has passed on the car. That is especially true at high-profile auctions, where the best money is invariably achieved by fully documented cars that are making their initial appearance on the open market.

Looking back, looking forward

What we learned in Scottsdale was that the collector car market is going through one of its periodic corrections. At least as of this writing, it has not collapsed like Lehman Brothers or the values of condos in Florida. And I don't suspect that it will.

Cars, as tangible objects, can provide a relatively safe harbor when everything else is in disarray. In addition, they provide a secondary value of use and enjoyment, absent in most investments.

If you bought a 275 GTB/4 a year ago for $1.5m and were savoring the opportunity to sell it at $2m and pocket a quick windfall profit, I'm sorry. If you bought one ten years ago for $300,000 and were holding out for $2m, I'm sorry as well. However, if you always wanted one but could only afford $1m, this could be your happy day.

I believe the correction we are in will result in only the best cars bringing top prices, and even those will be down 15% to 20% from a year ago. Lesser cars will devalue more and be much harder to sell.

Sellers have been slow to accept the end of the steady-then dramatic-price appreciation they have enjoyed for the past few years. That party is over.

Things will begin to stabilize as early as this summer. The U.S. government seems determined to rejuvenate the economy, and the degree to which it succeeds will be reflected in part by the buoyancy of the collector car market.

Collector cars are not essentials, like housing, bread, or milk (or even a good Oregon Pinot Noir, some might add). When times are tough, buyers become more thoughtful, transactions slow down, and sellers have to accept a new reality. It's not the end of the world, it's just a different one.

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