Classic Car Bubble

Slow puncture or blow out, are we repeating the mistakes of the past with the latest classic car bubble?

Mark Wilkinson, managing partner at Heritage Classic Car Insurance, discusses the classic car bubble, causes and likely effects.

What is a classic car bubble?

A classic car bubble is where values of desirable vehicles are pushed upwards as investors look to make a profit on the rise in their value over time. This rise in value is seen as artificial as it is significantly higher than what normal market forces would usually dictate.

Why are there classic car bubbles?

Investors, both individual and institutional, view classic cars as an asset and look to make a profit by speculating on the increasing value of certain cars. However, as a general rule, all assets run in cycles of boom and bust and classic cars have historically been no exception.

For investors the skill/guessing game/luck comes in knowing when to sell and not get caught owning high value cars when the market turns downward and the value of those vehicles is then worth less than what was originally paid for them.

It’s worth noting that the vast majority of classic car owners are not investors and are just passionate about their vehicles. For some, the rising values is an added benefit of car ownership, for others it is a major problem as it prices them out of owning cars they desire but cannot then afford.

Why is there a classic car bubble at the moment?

With the general economic crash of 2008, and the recession and financial uncertainly that followed, people were cautious with money and didn’t spend on classic cars, so in some cases vehicle prices fell or became relatively low and stable.

Things started to change in 2011 as confidence in the economy returned.  With interest rates at an all-time low and no sign of changing, every day car enthusiasts, frustrated at the poor returns on their savings, decided to increasingly change and upgrade their cars.

Fashions also started to change with a newer 30’s and 40 something audience increasingly getting involved in areas such as Japanese imports, modern classics, VW’s, mini’s, 4×4’s and modified classics.

Around this time, those individuals with ‘serious money’, those speculatively investing with borrowed funds and institutional investors, started viewing high end classic cars as an undervalued commodity. Here started the rise in values of specific models for premium brand vehicles.

Top three factors influencing a cars’ desirability.

  1. This is all about the perceived value of the brand or particular model, is it high end and prestigious? Do people crave and covet vehicles and associate people with who own that car as successful, achievers in life?
  2. How many numbers are actually left? The fewer numbers left mean less people can live that dream
  3. This is all about the razzmatazz and excitement around a car or model. Did it win races and rallies, did it have a celebrity owner, is it recognised as an iconic model, one that broke new ground and set new trends? If it did, people want it

The perfect storm for rising vehicle values is one that strongly incorporates quality, scarcity and hype. At the highest end these would include Ferrari’s (250 GT, 275 GTB), Mercedes (540K Roadster, W196), Alfa Romeo (8C), Bentley (Blower, Six Tourer), Bugatti (Royale Kellner, 57SC) all of which have made the headlines with stratospheric price rises and records set.

Of course the massive values of these vehicles, which can reach upwards of £10 million is way beyond what most of us can ever imagine affording and I don’t believe these vehicles are a significant driving factor behind the current classic, but it is part of the trickledown effect. These and other brands offer the opportunity to join the motoring elite.

With stratospheric rises at the very highest end, similar increases have been seen in traditionally more accessible marques, with the Ferrari Daytona, F40, Dino, the Porsche 356, GT2, GT3, RS, Aston Martin DB4, DB5 all increasing into the hundreds of thousands over the last 4 years and vehicles such as the Jaguar S1 E-type tripling in value over the same period.  This is where the investor speculation resides, with these highly desirable, but ‘relatively’ affordable vehicles.

Guided by both dealers and auction houses prices continue to role upwards, to the extent where certain traders have been criticised for monopolising stock on some marques, restricting supply to increase value. One notable example is a Lamborghini Miura which was allegedly bought by the dealer for £600k, first advertised for £895k, raised two months later to £995k and again to £1.25m, all within the space of 6 months.

The party doesn’t stop at this price point, however, as middle income earners increasingly look to drive the cars they coveted in their youth fuelling the rise in the ‘modern classic’. These 40-something, Generation X group of car enthusiasts are now snapping up iconic cars from the 80’s and 90’s. This is a cash rich segment of the population who seek alternative investments and have a desire to own classic cars, such as the Peugeot 205 GTI, Cosworth’s, Ford RS Escort, BMW M3’s and CSL.

There are other broader economic reasons which are helping keep prices high. The British government recently relaxed pension restrictions and allowed people to remove funds when required. It’s unclear exactly how much went where, but it’d be a safe bet that a chunk of pension pots went into two seat sports cars for the weekend.

There is also currently no capital gains tax on cars. This means that if you sell a car for more than you purchased it for, you don’t have to pay any tax on it.

Let’s face it. Modern cars are becoming increasingly homogenous and bland. For the modern consumer it’s now all about reliability, convenience, electronic driver aids, small efficient engines, semi and automatic gearboxes, hire purchase and lease deals for low monthly payments, while looking great in the latest white, go faster looking Euro box.

That’s great for your day-to-day bits and bobs. But if you crave a bit of visceral motoring excitement, then that’s not going to cut it.

How long will the current classic car bubble last for?

To read more on the classic car bubble and to find out how long the current classic car bubble is set to last click here to view the next page.