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.
