SYA Market Watch Blog

Auction results scrutiny has been at all-time high amongst a anxious collector car community, most looking for a reason to back their fears of falling prices. True, Barrett-Jackson was off by 21% over last year, but this was still in the top three of all years. Not that it should matter. The January auction frenzy that enthralls us all each New Year was down a petty 2.9% ($3.9 million) over 2007 with only 16 fewer cars on a volume of more than 2000 trading hands. So what does that mean? Because there were noticeably fewer million dollar consignments at BJ and R&S, that prices per car actually went up.

There have been a few voices crying “Chicken Licken” in newsletters and internet publications that been talking down muscle cars as investment vehicles. Almost every week I read about how shaky the market supposedly is. The most entertaining quote comes from none other than Drew Alcazar, co-founder of Russo and Steele Auctions. When asked in a recent interview for the online magazine CollectorCarNet.com if he considers cars an investment tool, Drew replied “Absolutely not. Anybody playing with collector cars from an investment standpoint is either stoned or deluded.” I suppose this philosophy is explains why Russo-Steele has such luxurious bar accommodations.

Then again, perhaps Drew is right, muscle cars make better dining room furniture than they do investments. Personally, I’d rather eat at a warm Mahogany table than pull up a chair to the hood of a ’69 Boss 429. It is probably more cost effective to furnish with wood as well. Alas, I will reserve judgment of Drew’s decorating tastes if he will make a more measured consideration of state of mental health and sobriety of those who are so often patrons of his company’s auction events. Healthy returns were made while setting promotion-worthy records at his Scottsdale event just this past January.

Kidding aside, there is a real concern for the long-term viability of the muscle car investment market as well find ourselves in a transformation from a pure hobbyist pursuit to a real expectation of return on investment. The ones getting burned are those who haven’t been hobbyist first, not knowing what they need to in order to protect themselves and their pocketbooks while using hard earned savings (or home equity) as a way to both indulge in a long-term passion while putting their cash to work.

Just like young awkward lovers, if it hurts and seems like no fun, perhaps they were doing it wrong. That doesn’t mean they were stoned or deluded (perhaps a little deluded). I means they each had to learn a few things before getting back in the saddle. The same can be said if you’ve been burned by trying to speculate on vintage cars.

The first step in choosing to treat a classic car purchase as an investment is to determine if you can really afford to. Just like buying stocks on margin, too many people over extend themselves to take advantage of a perceived profit opportunity only to lose it all and more to a short-term shift. Home equity lines on properties financed with an adjustable rate mortgage are a potent margin-call. In normal market conditions, large short term gains are rare and risky.

If you find yourself turning a car every year, expect to break even or give a little back as the “cost of enjoyment”. Then your car fetish is truly a hobby and the money you use should be allocated as such. It is best to take a medium to long term view of your investment horizon; plan on keeping a car for a minimum of 2 and 5 years between purchase and sale. Many avid collectors hold their cars much longer.

The step is to only invest in what you love. The reason investing in a car collection is the double pay-off you get from enjoying the cars and earning a profit once you sell. If you won’t love looking in your garage at the end of the day, you may as well stick to more traditional investments. You will likely sell too soon or sell yourself short if you fill your garage with cars that may have a good potential upside, but you don’t care a thing for.

Learn as much as you can about a given breed of car before buying. Each vintage car has inherent weakness and points of desirability that very by make, model, and the community that appreciates them. For instance, replacement quarter panels may be no big deal for one type of car and a death sentence to collectible value to another. Learn these points well and use them when asking a seller questions.

Lastly, buy the most CORRECT car you can afford. There are plenty of beautifully restored cars that are money pits waiting to happen because the restoration details are wrong or expensive parts are missing. Not know what these potential items are can turn your investment financial sink hole quickly.

Those who have been in the collector car community for a while see the current correction as a market ripe for opportunity buys. The auction environment is the right place to take advantage of someone else’s mistakes. Many shrewed purchases of undervalued cars can be made because the current owner can’t afford to hang onto the car for the short term, or they are choosing to leave money on the table instead of getting the details on the car right. The best recent example is a 1971 Hemi Cuda sold recently at Russo and Steele, touted as concours, yet had a litany of detail errors the buyer could affordably correct. The most glaring was the “show ready” engine bay marred by mismatched aftermarket accessory belts. I am no concours judge, but I don’t think the factory installed either Dayco or NAPA brand belts, let alone both on the same car. Well bought at $375k, the new owner looked at it as a 50% discount on last year’s average price of $650k. Correct the small stuff and in a few years, this car will likely fetch a million. That is where you want to be, educated and positioned to take advantage of short term market conditions with a view of medium to long range gain.

The auction scene aside, the real indicator of market health for investment quality muscle cars is in the private seller sector. This also has historically been the hardest to gauge. Just like the Texas housing market, it seems that lower-end and mid-grade cars are getting the closest shave, but the six figure cars (provided that they are of good quality and pedigree) are seeing plenty of interest, commanding a healthy dollar. I can personally attest to at least six $100K - $500k private purchases made in as many weeks since the Arizona auctions ended. Inquiries and offers have also sharply increased since the beginning of the year.

Today’s cash ready buyer has learned these lessons and is more deliberate that in the recent past, mostly because now they know more of the right questions to ask. Overall, this is a market whose attitude is maturing, not abandoning confidence, toward the investment of high quality muscle cars.

Summer 2007's market seems to have been marred by a sluggish classic car market. The combination of middle market buyers who typically spend between $50k - $125k tightening their discretionary spending, the investment quality muscle car market correcting itself, and the high-end of the Mopar world being shaken Enron Style by a He Who Should Not Be Named, its been a slower than normal selling season. No sweat, the past two years were bottle-fed by Barrett-Jackson hype anyway. Now it is time for cars to stand on their own merits, going motor to motor in a buyers market. The high-end collector (the kind that doesn't care about what the housing market is doing or how sad a shape the mortgage industry is in, or how volatile stock market is, and LOVE LOVE LOVE muscle cars) are still buying cars of tremendous history and/or unimpeachable pedigree. Those that jumped into the fray hoping to make a quick buck may be rubbing their head, wondering what happened.

People still have an appetite in the sub $30k market as they seek out just-for-fun cruisers. The slack in the middle market has been picked up by suitors overseas capitalizing on a war-torn U.S. Dollar. Canadians are feeling temporarily superior on the revelation that we too have to deal with two different languages on our grocery store products AND that their dollar is actually stronger than ours. A word to our Canadian Cousins, buy our cars while you can. Besides, French is still more insulting to see on the side of the yogurt container. What the heck does "Faites avec de vrais chat" mean anyway? Oh well, the yogurt was tasty...

As Alan Greenspan so adroitly pointed out on the Daily Show back on 9/18/07, the market has more to do with how people how are feeling about the market, confident or pessimistic, rather than the reality of market.
(See the http://bigpicture.typepad.com/comments/2007/10/alan-greenspan-.html for a full transcript and a video of the interview.) I think that it is the same in the collector car market. People tend to pull there horns in when they see people getting screwed out of many cars and millions of dollars. The same can be said about the backlash seen earlier this year in the January Auctions in Arizona when the euphoria wore off and reality sunk in.

Auction houses that have been running their business well seem to be rewarded in this market. Savvy buyers who know what to look for are taking advantage buying opportunities. Show Your Auto has been holding it's own this season because we've been paying attention to the things people need to feel confident about their purchase decision. Every car we've consigned this year has been subject to a comprehensive inspection, delineating objectively how they each present themselves, doing the comprehensive background checks, and giving people the ability to confirm that representation prior to finalizing the transaction. Putting these mechanisms in place has done much to set our clients cars apart from those littering the internet and paper classified pages. We've been able to sell investment quality cars to overseas buyers ranging from $100,000 to $250,000 sight unseen with great customer satisfaction.

The same is true for cars we've sold domestically as well. As I write this, I am returning from Richmond, Virginia taking in 15 cars on consignment from one collection. The owner commented to me, the best cars I have are those that you sold me. So, what we do is working.

The collector value of these cars is still intrinsically sound: a large number of people desire them, they aren't making anymore, and outstanding significant examples are even fewer. For the time being, the overseas buyer has the edge in buying them~ feeling more confident to spend a stronger foreign dollar to get them. If you are holding onto cars you "paid too much for", no worries in a year or two there will be fewer examples left on U.S. shores for the American buyer to choose from once they feel bullish enough to be buying strong again.

Endless talk and speculation about what is hot and what is NOT fuels the primacy of a short-term strategy to owning, collecting, and enjoying investment quality collector cars. The only problem for the consummate auto enthusiast is that there isn’t much fun in looking at the market that way. Some say Ford is enjoying the limelight while Mopars are left feeling a little green.

It appears that Mopars, particularly Hemi cars, just aren’t fetching as much as they were eight or nine months ago. Let me ask another question. Are Hemi powered Mopars any less desirable to you today than they were when you first saw one during your senior year in High School? If you’ve been a fan that long, I submit to you that the recent correction is neither diagnostic nor substantiative of the overall market value of these cars. It is a referendum on the quality of the current trading systems in place.

Those who are quick to read the January Auction tea leaves (or any auction results) and see falling Mopar values and a rising Blue Oval on the horizon by pointing to results, may as well be writing your Horoscope. The recent market correction is not a judgment on a particular vehicle’s desirability or rarity. The ratio of Hemi cars produced to those offered for sale in recent years has been high, even when prices were at their peak. The recent market correction is a judgment on the marketplaces that these cars are being offered through.

Recent live auction house results show more willing buyers registering and showing up, yet net sales are down. As Dave Kinney of AUTOWEEK pointed out in his April 16th article, BJ-Palm Beach Registered bidder attendance was up 52% this year, yet was down 2 million dollars in sales compared to 2006.

Most BIG collectors who are able to secure prime time auction slots are managing a large, diverse automobile portfolio and are motivated more by the overall net outcome of the event, or even the year. Overall success is measured in a long term outcome of a sophisticated strategy, not unlike managing a hedge fund. The arbitrage investor will always find a way to make money, even if the spot market seems down. The only difference is that live auction events are not regulated the way the stock exchange is. There are many strategies that can be employed by an unscrupulous person that would win you a pair of chain-lined bracelet’s courtesy SEC if employed in the stock market. Combine that with the flippers, the day traders of the car world, who may rush a hastily restored car to auction in order to capitalize on the temporary frenzy and you have recipe for disaster.

In any case, the investment collector with 5 or fewer cars, or the consummate car guy are now choosing to sit on there hands and wait for QUALITY cars to run though an auction, or are staying away from the scene all together rather than jump at the flavor of the week. The numbers don’t lie, there are more willing, educated buyers showing up ready to spend real money not just discretionary cash. Because the money is serious, so is the scrutiny of the prospective purchase. If the car is right, they will spend their money, gladly.

We see the same thing on eBay, which enjoys an increase of classic cars being advertised year over year, but cars being sold by bid are down. In speaking with eBay Motors representatives, they aren’t disturbed by the trend. The opinion submitted to me by one eBay Motors Dealer Services representative is best summarized this way: We know that the majority of cars are sold outside the auction, and the dealers that are selling them seem to be ok with that because they keep listing vehicles with us. From their perspective, eBay Motors is healthy. Potential buyers don’t see it that way.

Most potential buyers we spoke with during our March of the Muscle Cars online auction event shared with me that they like to see the cars offered, but are less willing to make a purchase commitment on eBay because they have either been burned by buying a car that was misrepresented, fell victim to a scam, or know someone who has. People have been telling us how much they like the idea of leaving their car in their garage while it sells, being offered a pool of pre-qualified buyers. Serious Mopar Collectors enjoy the security of knowing they are bidding on a level playing field in a secured, moderated transaction, but wish we could offer a bidding environment outside of eBay Motors.

As part of our March of the Muscle Cars Online Auction Event, a 1970 Hemi Challenger R/T-SE only bid to $130k on eBay and later was purchased by the same buyer for $225,000 because he felt comfortable with the pre-auction inspection we had conducted as a pre-requisite to listing the vehicle. Many other cars that appeared to go unsold went quickly after bidding closed for the same reason, the cars had undergone a detailed inspection by independent and knowledgeable 3rd parties. This is one of many concrete examples of a “no-excuses”, investment quality vehicle commanding a strong dollar.

So, the market isn’t losing confidence in Mopars, Hemis, or otherwise as an investment vehicle. The small-cap automobile investor community is maturing and looking for a marketplace that sees these cars the same way they do, objects of passion with intrinsic investment value, no different than art, precious coinage, or rare antiquities. And the life long car guys don’t like seeing crap flung against the auction house wall anymore either. Personal passion, not hype, should determine spot market spikes. Unless sales venues evolve to accommodate this trend, we will be stuck with wild swings in market values, being forced to deal with flavor of the month valuations rather than a stable market that considers pedigree, correctness, and quality.

~Patrick Krook, Owner Show Your Auto.com

The question the "common collector" that has been in the hobby for decades keeps asking is "Why?”, why does what happens at Barrett Jackson impact the rest of the market so significantly? Is it really a significant influx of new money, people who have more cash and less common sense than the avid collector that keep prices going up year after year? Is it really people who see the Circus Tents, the Auction Barkers, and the free flowing booze and see an entertainment opportunity in over spending for collector cars? I think that sells the 5,000 who flocked to Barrett Jackson this year a bit short.

No one is saying that is the safest, most deliberate, or most prudent way to buy or sell an investment worthy classic. In fact, most agree that is this most dangerous way to do either. As a seller you have ZERO reserve protection, and unless you are an established seller or have something they can hang all their promotion on, you aren't guaranteed prime time. As a buyer, phrases like "AS IS" and "Buyer Beware" never meant so much. So, why IS Barrett Jackson the 800 pound gorilla?

Wealthy enthusiasts know how to work the auction environment. They look at the same spectacle and see financial opportunity, both the opportunity to buy some cars at prices ripe for resale AND culling their weaker cars out of their collection.

When PT Barnum rolled into town, put up a wooden frame around a local scenic outlook with the ledged "The World’s Greatest View " and be able to charge 5 cents a person to see it? Like Las Vegas year-round, Scottsdale in January is an "X" the sand where someone said to anybody who is anybody, "The World's Greatest Collector Car Auction". And oh yeah, throw in free booze and a chance to be on TV! Good feelings abound during the prime-time showing of lots rolling by, huge numbers boosted by charitable write-offs. The average viewer soon forgets the charity part of the bid and remembers the big number.

Both Barrett-Jackson and PT Barnum are each talented self-promoters who know the art of appealing to the human ego. “Why wouldn’t the greatest view on earth be in our own backyard anyway?” the people reply. Thank you for pointing it out us Mr. Barnum, best nickel I ever spent!

No one questions that enthusiasts have a love affair with the automobile. And Barrett Jackson knows how to throw a party to celebrate her. Even the most casual purveyor of automobiles is drawn to swarey. The most common gripe I hear from "hard core" collectors is the seemingly endless supply of "new money" buyers creating wake in the pond, up-tilting the game by buying cars for unprecedented money that a discerning collector would never even consider. Well, yeah. It is in the auction houses interest to attract the biggest money and create and environment condusive a relaxed mind and free spending. Free Booze in, mandatory vehicle inspections out, 'buyer beware' signs up.

So, does all of this make Barrett Jackson a market maker? Not in a classic sense, because they don't own a portion of the stock in trade. Barrett-Jackson is not Hull Trading, "Circus Circus" perhaps. They own a very unique market place and know how to attract a specific kind of buyer. Bidders like Ron Pratt are the market makers, spending millions to build their collections and to contribute to some worthy causes while they do it.

Do the prices you see at Barrett Jackson directly inform how much people can get or their own car, selling privately? "Flippers" or market speculators that key in a particular marque to capitalize on would LOVE you to believe that.

The fact is that the majority of buyers see the prices earned at Barrett and see that they are overvalued. That is bound to happen when you attract the richest of the rich in a nearly 5 to 1 ratio of bidders to automobiles in a no reserve environment creating high drama where "everything sells". No one is quick to point out the 23% buy back rate that purportedly occurred in 2006, owners willing to pay a premium than sell their car cheaply.

If you want to consider what exactly the "Barrett Jackson Effect" really is to the larger market, it is consumer sentiment. It answers the question of how the wealthiest, most prestige driven among us feel about the collector car market? The only way to compare the prices garnered at Barrett and the other auction tents set up around them is to compare the numbers earned in events of years past. Is the value of similar examples (considering make, model, option configuration, time of day offered) trending up, flat, or down? This data could be considered in conjunction with MANY other factors. In the end, Barrett Jackson is great place to network, see people, and be seen. It may even be one factor amongst many that determine consumer sentiment for those who invest and trade in classic muscle cars. Like Mardi-Gras for automotive enthusiasts, it certainly is THE kick-off celebration to a new season, but an authoritative arbitor of what individual automobile values are it is not.

If you want to protect yourself from being taken advantage of in the broader market when seeking to buy a particular collector car, simply keep one thing in mind, Barrett Jackson is its own economy. All that the prices for cars at Barrett Jackson do is create the upper extreme of the bell curve. Statistically, these are the numbers that you throw out when figuring fair market value for anything. When prices on certain things come down, it likewise creats a "Bust" cycle amongst those who are over invested in their garage.

Looking at it another way, most of us aren't surprised to pay $16 for a cup a watery beer during a Super Bowl game, but we would take gross exception to walking to the liquor store and be asked to pay $96 dollars for a six-pack of even the finest lager. A few retailers would like you to think the value of beer HAS gone up. At the same time, when the Super Bowl is over, and Old Style is again $4 a cup, do you expect the corner store to sell it for fifty-cents? Nope, not at all.

~Patrick Krook
Owner, ShowYourAuto.com

I received this email from the Shelby Mustang mailing list recently and it upset me, so I had to write:

"Up until the 1980's Ford kept parts in stock for cars up to 15 years. They have reduced the amount significantly, from what I was told they plan for around 7 years now.
As I found out with my 1999 Cobra, there are parts that have been out of stock and there are no replacements around. I had a problem with the parking brake lever, and rigged it to get it to work. There were no replacement parts in the Ford system and there was no time frame listed on when they might be available if ever.
I remember the 15 year rule, because I had a 1967 Mustang Convertible that needed a caliper, the quad piston type were in service up to 1967. In 1983 Ford told me they stopped stocking those parts the year before, It took a little hunting to find a set, but at the time it was not that difficult."

Only keeping parts stocked for 7 years? This is sad in so many ways. The heart of collecting old classics is being able to find inexpensive parts. There are many cool old cars that we no longer see because they just don’t make parts for them, so it is impossible to restore them. Also, I remember always being able to easily get inexpensive replacement parts for many of the “beaters” I drove in high school. Owning my “Fix Or Repair Daily” as a kid kept the fire going until I could afford the clean standup classic as a young adult.

My fear is that this short term cost saving measure made by Ford communicates two very damaging things to the buying public. One, Our products are disposable and not worth maintaining for more than 7 years. Second, Younger drivers don’t make your first used car a Ford, because you won’t find parts for it.

I think that it is a powerful truism that how well a car companies older used products hold up directly impact the brand image of their new products. AND how many “Cool Classics” are seen driving around the cruise nights directly effect ‘brand aspiration’ for the generation of car buyers coming up behind the current customer buying base. Young kids see tons of old Hondas and Toyotas and no Ford products from the ‘90’s there is only one conclusion they will draw, Fords don’t last. 7 years builds in a generation gap both of those demographic groups. A 15 year used parts supply ensures a generation bridge.

Ford: Do you want to rebuild brand loyalty? Build inspirational products that stand the test of time for design and reliability. AND supply your customers with 15 year parts supply to keep them on the road for the generations to come. Outcome, you will sell more NEW cars.

~Patrick Krook, Owner Show Your Auto.com