Financial experts recommend diversity of assets when investing for your future. Buying just stocks or bonds or gold is not the ideal strategy; or at least, that’s what “they” say. Some folks buy coins, stamps, real estate and artwork as a hedge against market downturns but if you are a car guy or gal, investing in a collectible automobile (or several) may have more of an appeal. Here are some reasons to consider this approach, some caveats and advice on how to make smart purchases.
First, why consider buying a collectible automobile? My friend has several highly collectible Italian exotic cars and over the past 10 years, each car has appreciated faster than the stock market. For example, he bought a car that he wanted to use as a fun, sunny Sunday driver and, in fact he drove it on a 1,000 mile rally shortly after purchase with his wife and had a blast. However, while on the trip, the car showed some signs that refurbishing of the drivetrain was in order so he brought it into a reputable restoration shop and sought advice. The shop owner carefully went over the car and pointed out that not only was the car in need of mechanical work, it also had structural rust issues that had to be addressed to ensure that the car was safe to drive. When the work was finished to a “concours d’elegance” level, his car had risen in value to over five times what he had initially paid for it – including the restoration costs. I asked if he was going to sell it for what was estimated to be a mid-seven-figure price. He said that owning it as a car only required insurance, maintenance and registration costs. These, he said were VERY much lower than the money management fees and income taxes he would have to pay every year on dollars he would net from a sale. Of course, he bought the right car at the right time and at the right price but as you can see, if you have an appreciating car in your “portfolio” you can delay (but not avoid forever) paying income taxes and management fees. Plus, you have a fun car to drive and enjoy.
Next, what car should you buy? Like buying art, you should only buy something that you like. If your taste in cars is for European exotics, look in that direction. If you love American muscle cars or 1950s fins and chrome, there are lots to choose from. Even pre-war “antiques” have their appeal.
Once you settle on the type of car, you can then narrow your search down to a particular marque (or marques). The two makes that have been appreciating strongly lately are Ferrari and Porsche but there are other quality automobiles with upside value potential from Germany and Italy as well as the UK and the USA.
Once you have settled on a marque, then you must delve deeper into the models that both make your heart beat a little faster and have the potential for gaining market value. You can get assistance and advice from marque clubs like the Ferrari Club of America, Porsche Club of America, BMW Car Club, Corvette Club and many others. These club experts have the kind of experience that takes years to accumulate and most members will offer advice or be able to point you toward an expert once you get serious about making a purchase.
As with any investment, you really need to do your homework to learn the market value of your potential purchase. Hagerty classic car insurance has a valuation tool on their web site that can get you started learning about collector car prices. It’s a great place to begin if you are completely new to car collecting.
There is a wonderful magazine called Sports Car Market that reports on recent car auction sales with expert analysis on quality and price. While they have the words Sports Car in the title, their magazine covers other vehicle sales. If your tastes run toward Ferraris, the must-read publication is the Ferrari Market Letter. This publication started as a labor of love decades ago and continues today as the most reliable source for Ferrari market sales history and trends. These are just a couple of magazines to check out, dozens exist and a scan of the Internet will show you many more.
Finally, get expert advice before you spend your money. If you are buying a relatively inexpensive car – $20,000 to $40,000 – a basic pre-purchase inspection should be all you need to ensure that the vehicle is safe to drive. However, as the price escalates, there are things that need to be checked to make sure the vehicle is of “investment grade”. Paramount among collectors is originality. A beautiful Ferrari. Porsche, Corvette or BMW with after market parts, the wrong color paint or improperly modified body / engine / driveline components will never appreciate in value and should be avoided. Often, only a marque expert can tell what is real and what is improper. The fee that individual may charge is money well spent. This is especially true if you are buying a car at auction. Many times (all too many!!) a car is tarted up with paint, chrome and polish so that it stands out on the auction stage. Horror stories exist because as the Dollar / Euro / Yen / Pound price tag rises, the temptation to cheat goes up proportionally. A pre-purchase inspection by an expert can prevent serious financial loss.
In summary: Do your homework. Find a marque and model that excites you. Once you have picked an investment direction, get advice from experts and, as has been said before by politicians, trust but verify. Do a pre-purchase inspection no matter what! At the highest level (purchase prices in the hundreds of thousands of dollars) buying the wrong car or a car that isn’t what it was advertised to be can result in a serious loss of money.
One last thought about “market bubbles”. The old joke that a rising tide raises all yachts can be a cruel one. For example, over the past few years, used vintage Ferrari prices have gone sky high. Lowly Mondials, unloved 1980s 2+2 cars, have gone from $20,000 to over $40,000 and continue to go up because the Ferrari market in general has grown at a remarkable pace. Someone wanting to scratch that Ferrari itch suddenly sees what he thought was an affordable entry point has become a financial stretch and is caught off guard. Instead of choosing to stay on the side lines, these buyers have been jumping in and the market has responded. What can happen is, just as suddenly, a group of owners decides that the price of the car they bought has stalled, or worse is dropping. These cars get dumped on the market in numbers high enough to pop the bubble. However, again quoting experts, if the Ferrari, BMW, Porsche, etc., that you purchased is a rare, quality automobile, you should be able to withstand minor market fluctuations.
Bottom Line: Caveat Emptor and drive carefully!