For the last decade, the interest in collector cars as investments has never been higher. Now those chickens may have come home to roost, at least for a lot of formerly gold-plated collector cars.
There are three basic pieces of advice we’ve always given to people who are interested in purchasing classic, collectible cars:
- Buy a car you love
- Buy the absolute best car you can afford
- Don’t worry about what it’s worth in the future
The first two bits of advice are good no matter what a classic car costs. The third is a lot harder to justify, especially as the collector car market has changed.
Vintage and collector cars can still be relatively inexpensive, but they’re often orphan brands, less-than-popular models or from generations that most people haven’t caught onto quite yet (we’ll provide a few examples further down in this post).
If you’re looking at the kind of cars that most people want, though – ’57 Chevrolet Bel Air, ’55 Thunderbird, ’70 Hemi ‘Cuda, Series 1 Jaguar E-Type, ’73 Porsche 911 S and the like — you’re going to pay real money for them.
As the price for something like an early, air-cooled Porsche 911 bounces off the $75,000 mark, the funds used to procure them are increasingly coming in the form of a loan, either against home equity or from a firm that specializes in classic car lending.
According to an article by David LaChance in Hemmings Motor News, at least 10 percent of the 500,000 cars insured by Hagerty Classic Car Insurance were financed in 2008 and that number may have reached as high as 20 percent. Leveraging credit to purchase items that people used to buy with discretionary cash seems like a 101-level class in How to Construct an Economic Bubble. Its not as bad as the housing crisis, which impacted every homeowner in one way or another, but when the inevitable crash comes, there are going to be a lot of people holding the bag on cars that are worth pennies on the dollar they spent for them.
The Hagerty Market Index
Over the years, a lot of companies have tried to study classic car values and build them into some kind of a meaningful index that investors can use to understand where the market is. The trouble is, it requires a huge investment in data scientists, and to be considered meaningful, it has to be measured by a company that at least appears to be relatively impartial. In the early 2000s, auction house Barrett-Jackson tried developing an index, but it only measured the prices that cars sold for at its own auctions, which didn’t reflect prices that cars sold for on the street. The price of a Hemi-powered Superbird that sold under the hot television lights on a Saturday night in Arizona doesn’t have much to do with what a car might sell for privately.
Hagerty Classic Car Insurance definitely has skin in the game, and its success hinges on the health of the classic car hobby. But because Hagerty writes insurance policies based on a value that the owner and Hagerty agrees upon, it has to have a clear idea of what collector cars are actually worth. To that end, Hagerty developed a range of valuation tools. If you’re interested in a particular car, you can visit Hagerty’s page and get a much clearer picture than what NADA guides used to provide.
Hagerty also compiles all of that data into a couple of indices that it uses to determine the overall value of the collector car market, to begin to understand trends in the hobby as a whole, and in specific years, makes and models of vintage cars.
BESTRIDE PODCAST: Hagerty Insurance’s Brian Rabold Talks About Classic Car Values
Disaster Leads to Inevitable Recovery
During the economic downturn of 2008, discretionary income dried up and credit markets tightened. I was an editor at Hemmings Motor News at the time, and we waited for the inevitable crash in the market, but it really never came. In fact, sooner than the housing market rebounded, the collector car market snapped back. By the end of 2009, the market reached its bottom and started climbing again. By August of 2011, it was back to its former peak, but it was just getting started.
It’s not possible to see it in Hagerty’s data, because the insurer only started processing data using its proprietary methodology in 2007, but this isn’t the first time something like this happened.
Financial markets took a massive hit during the combined bursting of the dot-com bubble in 2000, and 9/11 in 2001. If you were a prognosticator, you wouldn’t have been considered irresponsible if you advised speculators to stay away from collector cars, but you couldn’t have been more wrong. Collector car values exploded by 2002, and muscle cars in particular took off like an Atlas rocket.
As the overall economy began to recover in 2011 and 2012, so did the health of the collector car market. Between 2011 and early 2016, collector car prices overall soared more than 66 percent. If you extended the graph to the left to 1996, you’d see a relentless climb, with just a handful of dips over the years.
In general, a few things contributed to the climb in value. Muscle cars — particularly the highest performance, lowest production examples — pushed values of even lesser examples higher. A handful of European cars — Mercedes-Benz SL300s, Porsche 356s, early air-cooled Porsche 911s and 1960s-era Ferraris — also experienced explosive value over the last half-decade.
While the collector car market has experienced significant growth, there have always been examples of boom and bust. Take the Ford Model A for example. For a time, the Model A was a relatively hot collector item. Consider why: World War II veterans who were in their teens as their service ended didn’t have the dough to purchase those cars in the 1930s when they were the hot ticket. As they reached peak earning years, they had more disposable income and they spent it on the cars they wanted as kids.
The ad above appeared in the July 1977 issue of Hemmings Motor News, a publication that originally started life in the 1950s as a newsletter specifically devoted to sales of cars and parts to support the Model A hobby.
Adjusted for interest, $12,500 would have the same buying power as $52,750 today. Yet, if you search for exactly the same car in 2017, you could find one all day for $30,000, if not significantly less. You basically can’t restore a Model A today and expect any kind of return on your investment.
A similar situation happened in the 1980s with Ferraris. In the short span of five years between 1975 and 1979, your average Ferrari Daytona catapulted from $15,000 to $75,000. Interest rates skyrocketed around the same time, killing the Ferrari market — for the moment. The late-1980s made that $50,000 Daytona look like a bargain, when the same car could fetch ten times that amount.
Ferrari 365GTB4 Daytonas have certainly picked up in value since then. Examples with known pedigrees sell at some of the country’s most prestigious auctions in the $750,000 range. Still, if you adjust for inflation, $500,000 1989 dollars would buy well over $1 million today, so the actual value of the car has never regained its value at that point.
Has the Bubble Burst?
September 2017 was the first time in the last six months where the collector car market saw any growth at all. 2017 has been one of the most significant downturns since the economic meltdown. Aside from the stock market, there are many economic indicators that suggest that this may just be the beginning:
Economic indicators such as wage stagnation, consumer confidence and total employment all indicate that the economy isn’t growing, and as a result, discretionary spending on things like high-dollar collectible cars is cooling pretty rapidly.
There are some pretty major canaries in the coal mine. If there was a gold-plated, sure-fire muscle car winner in the mid-2000s, it was the Chevrolet Chevelle LS6. For a period of time, there appeared to be no cap on what one of these 454-cu.in.-powered monsters would be worth. At Barrett-Jackson’s 2006 Scottsdale auction, an LS6 convertible with SS/EA-class dominating drag racing history sold for $1.3 million.
Suddenly, LS6 Chevelles were selling all over the country for huge money. Then, just as suddenly, the bottom dropped out. The very same car sold in 2009 for just $264,000. You can see the impact in Hagerty’s data:
The top line here represents cars that are considered to be #1 Concours condition. At the point of takeoff, those cars were trading in the $225,000 range. Ten years later, they’re barely cresting $200,000.
Entire groups of cars are dropping, or remaining flat. Hagerty’s 1950s American Car Index, which contains cars like the 1959 Cadillac Eldorado Biarritz, the 1957 Chrysler 300C and the 1956 Lincoln Continental Mark II, haven’t changed value in a decade:
Post-war British cars like the 1963 MG MGB, the 1967 Sunbeam Tiger, and the 1965 Jaguar E-Type gained significantly in the earlier part of the 2010s, but according to Hagerty’s expert Brian Rabold, “buyers can now be very patient while shopping in this segment. Sellers will need to price their cars aggressively to solicit interest, or else have an extraordinary example to offer.”
Even Ferraris are struggling. According to Hagerty’s Brian Rabold, “Even though the index overall was static, 6 of 13 cars decreased in value and none increased. In fact, only one car—the 1960 250 GT PF coupe—has increased in value over the past year, and that being only a mere $5,000 change.”
Out of six market segments, the only one to show any significant improvement over the last six months was Hagerty’s “Blue Chip” index, which includes the cream of the collector car crop, including cars like the Toyota 2000GT, the Shelby Cobra 427 and the Mercedes-Benz 300SL Gullwing. But even the news there wasn’t that great. All of its 3% gain the last month was due to prices for the ultra-rare Jaguar D-Type. “This move is due in full to a surge in D-Type pricing,” says Rabold. “Take the Jaguar out of the equation and the index actually dropped by a percent.”
What’s It All Mean?
Hagerty’s Brian Rabold is more optimistic about the industry as a whole, though. He looks at the last six months as a stabilization and a “soft landing,” rather than the beginning of a crash.
You can hear more of Rabold’s commentary in this week’s BestRide Podcast:
The markets for all kinds of collectibles that appeal to baby boomers and older Gen Xers are cooling. 1950s-vintage Gold Top Gibson Les Pauls that once sold for $75,000 eight to ten years ago are now popping up on eBay with Buy It Now prices of $35,000, with a bonus amp included. For people who thought they’d forever be priced out of the market on cars, guitars, mid-century modern furniture or anything else collectible from the 1960s and 1970s, the time to buy may be in the next six months, as uncertainty continues to plague markets.
As always, those three pieces of advice we mentioned at the beginning of this story apply:
- Buy a car you love
- Buy the absolute best car you can afford
- Don’t worry about what it’s worth in the future
That’s what Morris Porter did. He bought one of those LS6 Chevelles that have proven so volatile in the last decade.
It’s a Forest Green 1970, with a factory four-speed Muncie M22. “I always wanted a 1970 SS 454 Chevelle and finally bought one a number of years ago,” he told us. “It was and continues to be a driver quality LS6 car. I made sure that it was a documented car to anchor the value for insurance. I didn’t buy the car with any illusions about striking it rich, I just want something that I like. If it goes up, great, and if it goes down I still have something that I like. Incidentally, the car has more than doubled in value since I bought it.”
Most importantly, Morris adds: “It makes me feel good every time I drive it and even when I look at it in the garage.”
Try that with your 401(k).