Bumpy Road Ahead

Five years ago, everyone down to your shoeshine boy had a tip on how to buy a classic car and make money while driving it. Now, the market has calmed down. But is it still worth investing in a dream machine, or should you just buy one in order to enjoy it?

“Cars speak for themselves,” says Dietrich Hatlapa, founder of the London-based Historic Automobile Group International (HAGI), succinctly summarizing the polarized state of today’s collector car market. Gone are the heady days of 2012 and 2013, when buying virtually any old car would guarantee you a short-term return on your investment and automotive auction houses were turning over hundreds of millions of dollars at their flagship sales. Now, it is very much a story of stability and caution – a market in which only the very best cars (those that are highly original, well documented, with low mileage, and – perhaps above all – are rare) command exceptional prices and everything else has fallen back in line. “Those who own great things know it and so do the right collectors,” comments Geneva-based dealer and market influencer Simon Kidston. “Sooner or later, seller and buyer meet and the magic happens. But for the other 99 percent right now, it’s more of a bumpy ride.”

A glance at the HAGI database, which tracks thousands of actual transactions – both private and at auction – back to 1980, provides some stark perspective. In 2013, the Top Index (HAGI’s overall market measure) showed a staggering growth of 46.8 percent. Fast forward to the end of 2017, however, and annual growth had dropped to just 1.7 percent. So, what reasons can be attributed to this dramatic shift? “Volumes have declined drastically and investors who knew what they were doing – those who had alternatives – have largely left the market,” says Hatlapa. “These people felt comfortable adding to their collections when interest rates were low following the financial crisis. Now that trend is over, they’re happy with what they’ve got and are investing their money elsewhere – in the financial markets, for example, where the liquidity is perhaps better.”

London-based dealer Max Girardo of Girardo & Co cites a much simpler reason, that of supply and demand. “Nothing appreciates forever, be it cars, real estate, or gold,” he says. “Take the Mercedes-Benz 300 SL Gullwing, for example. When it was valued at €500,000 ($615,000), there might have been 1,000 people who could afford one. When it jumped to €700,000, that number might have dropped to 600. And when it surpassed €1 million, only 300 might have afforded it. The market finds its equilibrium.”

With the speculators largely absent, Hatlapa suggests the market now resembles what it did before the financial crisis in 2008, one which was more for specialists and discerning buyers who could afford the time to consider what they were going to purchase and to be selective about which actual car was best. Now, there are fewer transactions (maybe only half of what were made just a few years ago, Hatlapa reckons) and prices are keener. But a bullish Girardo does not view this as a bad thing. “Interest is still high and people are still buying cars,” he explains. “They’re just a lot more cautious than they were. Sure, an Aston Martin DB4 might not be as valuable as it was two years ago and there are seven or eight Ferrari 365 GTB/4 Daytonas currently for sale to choose from. But the market is healthy, and special cars are still selling really well.”

In terms of marque, there are a number that currently dominate the market. HAGI reports that from January 2017 to January 2018, its classic Ferrari index grew by one percent, but its classic Porsche index shrunk by 3.7 percent, both figures being in line with the theory that only the greatest cars – a comparatively tiny number – are selling strongly. Meanwhile, classic Mercedes-Benz was the only index with any notable increase, recording a 9.6 percent growth. You might be wondering why two sports car marques producing cars in relatively low numbers, closer to what the market currently wants, have been outperformed by an industry goliath that has, historically, produced cars in much larger numbers.

“Mercedes-Benz is a much broader brand,” explains Hatlapa. “It didn’t just produce sports cars; it produced everything, the majority in very large numbers.” He, too, refers to the Mercedes-Benz 300SL to illustrate his point. “Fourteen-hundred Gullwings and 1,858 Roadsters were built. If you compare that to a similarly sophisticated car with racing pedigree from the same era, it’s 10 times more.”

Prices for classic Mercedes are comparatively low and the cars are mechanically reliable, with parts and support available from the Mercedes-Benz Classic Center, which repairs and sells vintage models. This makes their cars attractive to those who want to use them with little hassle. Over the past five years, though, Mercedes has not performed as well as the sports car manufacturers (or even the overall market). “It’s a much less volatile market,” says Hatlapa. “If you look at our averages back to 1980, Ferrari is at over 15 percent, Porsche is at 10.5 percent, the Top Index is at 13.5 percent, and Mercedes is at 9 percent. The curve is flatter because Mercedes made so many cars, which makes it steadier through the economic peaks and troughs.”

Another notable, albeit more gradual, shift is the generational change in the market and how this has affected which cars are growing in demand. “We’ve seen a new type of buyer enter the market,” comments Oliver Camelin, Car Specialist at RM Sotheby’s, the classic-car auction house. “Five years ago, our youngest buyers were in their late thirties, but with the internet generation booming as it is, there are more wealthy people of a younger age.”

Indeed, as these enthusiasts have grown older and wealthy enough to afford the cars they had posters of on their bedroom walls as teenagers, we have seen cars from the 1980s, 1990s and even 2000s – chosen by so-called youngtimers – climb in value. According to the K500 Index, which compiles historic results from the major automotive auction houses, the average year of cars offered at auction has shifted from 1957 to 1966, a not insignificant jump. And in 2017, the 10 most popular models from Classic Driver magazine’s Market (listings where high-profile dealers and auction houses trade tens of thousands of collector cars each year) included a Porsche 911 G, a BMW E30 and a Lamborghini Countach, all from the 1980s.

says Girardo, “and a more modern car is a good place to start as they’re more reliable and easier to own.” Kidston concurs: “Younger collectors favor cars such as modern Porsches, a sector that’s seen growth, while interest in Great Gatsby-style Americana from the 1920s and 1930s – everyone’s idea of a classic – is dying off.”

Hatlapa, though, is cautious. While he thinks the pre-war market is in structural decline, he asserts that certain cars – Grand Prix Bugattis and Alfa Romeo 8Cs, for example – will always be attractive because of their exceptional provenance. Indeed, a superb 1938 Bugatti Type 57C Coupé Atalante, which sold in February 2018 for €2.8 million (a record price for this model), would appear to back up that claim. Regardless of age, a great car will always perform.

On the one hand, there are sub-$100,000 modern classics, which, as Kidston is keen to point out, are affordable and fun to drive. Then there was a limited-edition example of a Lancia Delta Integrale Evoluzione II, which fetched a whopping €161,000 at a 2018 RM Sotheby’s sale in Paris. “We’re being asked to add more modern cars to our value guide,” comments John Mayhead, from Hagerty International, which provides a valuation tool for prospective buyers. “Cars such as the Aston Martin DB7 GTA, Porsche 996 Turbo, and Alfa Romeo 146 GTA, the last of which has doubled in value over the past three years to around £12,000.” However, while Kidston foresees this trend continuing, their large production numbers will stop them from reaching too far in the market cycle. “The simplest value driver for modern classics is production numbers,” says Hatlapa. “I would be much more comfortable buying a Mercedes-Benz 190 Evo II, of which 502 were built, than a BMW Z8, of which 5,703 were produced.”

On the other hand, we have seen modern (even contemporary) super- and hypercars perform strongly. At the 2018 collector car auctions in Paris, a virtually brand-new Bugatti Chiron sold for €3.3 million, a 2006 Ferrari FXX garnered €2.61 million, and a 2004 Maserati MC12 fetched €2.2 million. “Some thought the Chiron would have achieved more had it been in a unique color,” adds Kidston. “‘One of fewer than zero’ is music to the new collectors’ ears.” Meanwhile, a 1953 Ferrari 166MM and Johnny Hallyday’s 1965 Iso Grifo failed to find new owners. Auction sales numbers are only one indicator of the state of a market – auction houses can only sell what is consigned in any given sale – but in February 2018, during France’s annual classic car week, the Paris auctions between them posted a total of €70.9 million in sales; in the auctions three years previously, sales achieved €86 million. It has become a selective market.

comments Camelin. “The less these cars have been used, the more desirable they are.” And he should know. At the RM Sotheby’s London sale in 2016, a flawless Porsche 993 GT2 that Camelin consigned soared to £1.85 million ($2.6 million), igniting an insatiable craze for rare, modern Porsches. At the same sale one year later, another GT2, in a less desirable color and with a slightly dubious history, reached just £776,000. The halo effect of Ferrari’s name and limited-edition models such as the F355 Challenge, 458 Speciale and F12TdF are also a good case in point – that cars like these have today appreciated in value, unlike their standard counterparts.

So, if one could peer into the proverbial crystal ball, might such rare and exotic modern cars ever reach the dizzying heights of, say, a Ferrari 250 GTO – the widely acknowledged holy grail of the classic car world (with only 39 ever made), each worth in excess of $50 million. “There’s only one car that has showed signs that it could, and that’s the McLaren F1,” says Girardo. In summer 2017, at a sale at Bonhams Quail Lodge (the car auction venue in California), a McLaren F1 sold for $15.6 million – which is more than 16 times what it cost new and almost double what the K500 Index valued the model at in 2014. So, why has the F1 ascended in such extreme fashion?

The answer is pedigree. “The McLaren F1 was built in very low numbers, it won at Le Mans, was built in an entirely uncompromising fashion, and benefits from extensive support from the factory today,” explains Hatlapa. Simply put, no other car from the past 40 years boasts the same intoxicating cocktail of attributes. Having handled the sale of an unprecedented number of F1s in the past 18 months (and counting himself as one of the lucky 64 owners of the road-car version), Kidston understands its appeal only too well. Interestingly, he noted that the people buying F1s tend to be younger and are taking a long-term view. “Generally speaking, they’re not buying Bugatti EB110s and Jaguar XJ220s – they’re coming in at a higher level rather than graduating to it from a lower one. This generation does its homework methodically and with dedication.”

The future of the automotive industry – taking into consideration electric powertrain technologies, the digital revolution and a global society in transition – is also clearer now than it has ever been before. Several major manufacturers, including Jaguar Land Rover and Volvo, have already confirmed that they will stop building cars powered solely by internal combustion engines within the next three years. And as so many new technologies are introduced, so we must bid farewell to those that, in 10 years’ time, will be considered obsolete – regardless of how much we love them. Take the manual gearbox, for example. Some manufacturers such as Ferrari and Lamborghini have already banished the stick and pedals to the annals of history.

But the overwhelming demand from the automotive community – which simply loves driving for its own sake – has pushed some marques, such as Porsche, to continue to offer a manual gearbox, albeit only in low-volume production cars such as the Cayman GT4. As a result, there has been a demand for these last-of-a-generation cars, which are fetching extraordinary prices, such as the Ferrari 599 GTB that was offered by RM Sotheby’s in Paris. One of only 30 manual cars delivered worldwide (with just 10 to Europe), it fetched €365,000 – about three times as much as the cheapest F1 gearbox cars.

How will the electric revolution affect attitudes towards, and the subsequent market for, classic cars? The general consensus among the experts is that, in the long run, it will only increase nostalgia and encourage recreational driving. “My prediction is that in 200 years’ time, cars with combustion engines will be used in the sameway horses are today, for racing and for pleasure,” says Girardo.“Day-to-day transport will be done by a computerized box, but at weekends people will crave a multisensory experience.”

Returning to the present, the experts are unanimous in their view that the current market is unpredictable. And it is a similar story when 10 industry heavyweights were asked by Classic Driver which cars they would be watching in 2018. “The must-have models will continue their ascent, while the also-rans will remain relegated to the back,” concludes Kidston. However, there is one market force that cannot be measured and that we often take for granted, particularly in today’s world of political and ideological turmoil: passion. “There’s a lot to be said for people buying classic cars simply because they make them happy,” comments Mayhead. “And that’s actually a by-product of all the chaos in the world – I think this is a strong driver for the market in this current period of sustainable growth.”

Girardo agrees, suggesting that numbers or trends do not explain everything. “I’m not sure supply and demand is so market focused. If someone told me that my Lancia 037 was going to drop in value by 20 percent, I still wouldn’t sell it – and that’s from someone who sells cars for a living!” The absence of speculators has, once again, turned focus to usability, and the ever-increasing number of events around the world is only reinforcing this. “What’s also refreshing is that we are attracting enthusiasts who are passionate about what they are trying to buy,” summarizes Camelin. “It might be an investment as well, but that’s not the sole reason they are buying the car, as was the case during the market bubble in 2011 and 2012.” So, it is not so much a question of which cars speak for themselves, but rather the abundant stories and memories those cars could tell if they could speak.

Alex Easthope is Deputy Editor of Classic Driver, an online classic car magazine, covering the automotive and luxury lifestyle industries.