How long with the current classic car bubble last, with so many factors to take into consideration?
This, quite literally, is the million dollar question for some people. There are many factors in play which all contribute to the confidence that people have to buy or sell a classic car. In truth nobody knows what will cause a downturn, when that will be and how far it will fall.
Likely reasons why the classic car bubble might burst.
- Interest rates. Rising interest rates are likely to be a catalyst here; firstly as it will make non yielding assets less attractive and secondly when assets bought on debt become too expensive to service they will be forced into auction and potentially have a big impact
- Other commodities and assets becoming more attractive
- Political and Economic change. Both national and global. Look towards China as their economy slows, impacting other world economies and ‘wobbles’ on the financial markets.
- The ‘Black Swan Event’. Oh, I didn’t see that one coming. No, none of us did!
One potential influence on the classic car market would be a high profile scandal, involving a supposedly old vehicle, sold as original, which turns out to be a high quality replica. Provenance is key to vehicle values, and as with other commodities such as art, it’s a fairly safe bet that these replicas exist and are getting passed round like hot potatoes, but is someone going to shout? That push may actually come from the DVLA who are already writing to some owners asking them to prove the historical status of their vehicle (see our article on the latest DVLA update).
Similarly, a crash in another market could force those affected to generate cash by selling other assets. Here it is about the fragility in the classic car market and whether it can absorb these type of events. Recent volatility in the Chinese market highlights the speed that ‘the game’ can change.
It’s also interesting to watch what other high profile people within the industry are doing. There is a well known journalist and TV presenter and a well known radio DJ and TV presenter, both of which have recently sold a large proportion of their vehicles. They have put this down to not using the vehicles any more, but it can’t be ignored that they are very astute people who likely see the present market as a good time to ‘cash in’ on these assets. High end vehicles are the ones to watch at auction for a potential market downturn as I suspect these cars will be the first to be sold when the tide turns.
On the other hand, the world is finally realising that the last Jensen Interceptor was made in 1976 and Ford Capri in 1986. I know that sounds obvious, but there is never going to be another of these cars made. Enthusiasts both new and old are now realising that owning a classic car represents a unique piece of motoring history.
There is also a very strong classic race scene, numerous well attended events and shows, well organised clubs and classic tours all of which open the door to a lifestyle choice that attracts a lot of people. That isn’t going to disappear even if the bubble does burst.
Nostalgia is a powerful thing and the world market has never been a bigger place.
New markets in the Middle East, India, China and South America have now opened up and are starting to buy those vehicles which are seen as desirable, those that make them feel special and different.
While, all bubbles pop and what goes up, must come down this recent rise in vehicle values is different from the last one in the late 80’s and 90s. Fuelled by wealthy Arabs and Americans and speculators purchasing vehicles on debt, which meant that when values dropped, investors sold very quickly and values plummeted. Coupled with the Gulf War and a spike in oil prices, this saw the end for classic car investment in the 1990’s.
Now buyers are tending to purchase with their savings, the supply of good cars is increasingly limited and demand is still high. So it appears that values are more justifiable and stable and prices could hit a plateau or that any correction will be gentle rather than a major fall.
The question to ask ourselves is ‘when is enough, enough?’ A car just ‘isn’t worth that’.
I suspect for some vehicles we are already reaching that point. I think there will also be an element of new classic car owners coming in with rose tinted glasses and realising that their investment has been stuck in the garage for three months and costs a fortune to run.
These in my opinion are points that support a plateau, slow puncture theory, plus we are now so connected online that it is very easy to know a cars worth.
The key to not losing money is to only buy a vehicle you truly want and not pay any more than you can have locked in for maybe a couple of decades. Here lies the difference between a proper car enthusiast and an investor.
So if we continue with a stable global economy, I can see upwards trends continuing but beginning to plateau over the next six to 12 months, with interest rates rises resulting in a puncture effect, as investors look to shift to better performing assets.
However, if the global recovery takes a hit, (keep an eye on China, India and Europe) all bets are off, then batten down the hatches and on hang tight for the long run!
Top ten classic car buying tips
To read Mark’s top ten classic cay buying tips click her