is the bubble due to burst?

I agree with a lot of that but remember as well that you, without saying it, are correctly looking at the market in terms of segments and sub-segments. Not all cars behave the same, price-wise, demand-wise, or maintenance-wise, and as such they attract different buyers with different economics. With that in mind, how can there possibly be one sole classic car market with a uniform characteristic? Most people are trying to characterize this whole thing with one big brush, and that is simply not the reality.

 

I’ve read with a lot of interest what you’ve wrote so far.
And I believe that at the end of the day that there are some firm points.

- The very top end of the market (basically every Ferrari from Daytona – backwards and few other rare cars like 300SL, Talbot Lago, real Cobras and GT40, Porsche 550RS ecc.) basically isn’t affected by any bubble burst; of course their prices could have a limited drop but no tragedy here

- The history of the last 25 years have teached me that no classic car comes back to the value it had before the beginning of the “bubble”, whatever the car is

- The 95% of the classic cars on the market are under the 500K threshold, and that’s here where people could get hurt. That’s here were the real “war” is. When I see that the same restored 911S I sold one year and half ago at 85K now’s worth 185K, there’s something wrong with it. We’re not talking of Weimar Republic inflation or about corn supply during a war, but of the same car one year later. A car produced in quite good numbers. People who buy cars under this threshold are wealthy for sure but no so much to afford a 30/40% value loss without avoiding a divorce.

- I’ve read that a (classic) car is not an investment; I don’t agree at all. Even a telephone could be an investment as long as it (at least) holds its value through the years or increases it by the same percentage of the monetary inflation. Actually, classic cars have been (on average) one of the best investments of the last 20 years.

- I’ve always been a classic car nut but, not being a millionaire, if someone offers me 10 (or 15) for the car I paid 5, honestly I’d surrender, and that’s what has happened to a lot of guys I know personally.

- Said so, my father uses to say that “when a Ferrari 308 reaches a six figures price, it’s the moment to sell”. Will he be right?


Francesco

 

Around 1989/90 an F40 sold in the UK for a Million GBP. I have a friend who bought one in 2000 for 105,000 GBP.

 

In 89 a F40 was a million and now 25 years later they are a million, on the basis of what had just been written they are massively under priced.. A million pounds 25 years ago is around 5 million pounds now.. Better go out a buy some cars. They all seem good value.
It seems to me that the only people moaning about the market are the people who say everything is to expensive and never acually buy anything...

 

Please people do not confuse 1989/90 with the same circumstances now. 1 million GBP for what was a 190k GBP car represented a 5 fold increase of the monetary value of what was a new car at the time. Does anyone know of any new car that has sold for 5 times its current retail price in the last 10 years?? I don't know of any.. however in 89/90 even 328's were doing so...So things are not the same

 

Testarossas were selling for $800,000 after Enzo died... Then they went to $50,000. What is that, a 95% drop?

Now they are up to $150,000 and some are saying we have "peaked"? Its a bubble?

Some say that collector cars have peaked but:

A 1000sf house in LA for $1.5 isn't a bubble...?

A $20,000,000 condo in NY isn't a bubble...?

Compared to that, a testarossa at $150,000 is a screaming bargain...

 

QUOTE

It seems to me that the only people moaning about the market are the people who say everything is to expensive and never actually buy anything...[/QUOTE]



That about sums it up......
Jack

 

Excellent points!

The same price point can be made about the Testarossa.

Difficult to name put a few Super Cars of the 1980/90s that can be purchased 30+ years later for less than or equal to original MSRP.

 

The new car of the last 10 years with the greatest amount of appreciation would be the Ford GT & at best with the rarest ultra low mileage Gulf scheme paint job,the appreciation percentile might be 3-4Xs MSRP.

 

No, that is not the conclusion. Let's first get at the notion of 1mm pounds then = 5mm pounds now. Average inflation in London (excluding real estate, addressed below) was around 2%. Including housing, let's call it 2.5%. That starts to approach 2x, not 5x, over 25 years. So we would be equating (at the peak of a massive bubble, that popped shortly afterwards) a 1mm high point price vs. 1.9mm today.

Now, for equating the two prices of a physical product that ages and has upkeep costs, let's apply some logic. First, and foremost, you cannot compare a brand new car vs. a car that is 25 years old. At the prior bubble point, besides being supported by a broader market bubble, Enzo passed away in that same time frame. We knew the F40 would be the pinnacle under his stewardship. So that was already influencing the price / value. Now let's look at historical context.

The bubble burst, prices then stabilized, and for many years were close to the "normal" range. You can't just point to a peak 25 years ago, and another peak now and say "voila, look at prices, they haven't "budged" so cars today look cheap". The cars selling at the same price point today are now 25 year old cars, with significantly higher maintenance costs and expectations built into their prices. Also, the adjusted price (zero mileage car to zero miles car today, nevermind that maintenance will still be much, much higher today) will look even more skewed. Find a "factory fresh" F40 today and see what the price looks like. Yes, it will be immensely more rare in the modern context, but it will also have enormous driveability costs (anyone putting miles on it will incur a massive value penalty) and so has become a piece of art over a car.

Also, you can't compare to some of the highest appreciating real estate on earth. First, we can't assume that real estate markets themselves aren't inflated due to low rates, funds seeking safe havens, etc and, second, you are comparing real estate, the value of which is primarily the location / space, which doesn't depreciate over time, to a car -- something that typically depreciates, and rapidly. Land has rising costs too (taxes) but those will generally not be due to ageing, unlike cars.

Now, if you took the cars and just said, hey, these are entirely art, and they don't have any value beyond their status as collection pieces, and then say they ought not to depreciate, fine. But that is a hard case to make, I think, for the vast, vast majority of cars. Extremely limited editions show evidence of some of this behavior, and they start to trade on the chassis and other features (allowing high values even with dubious histories, wrecks, etc). But hard to entirely eliminate some of the same speculative / bubble influences even from those markets, so the leeway provided (and how close they reach "art" status) is also in question.

Getting to the fundamentals, though, the current prices of F40s look similar, inflation-adjusted, to the past bubble. So you actually made a good point...

 

No this is not correct. If we use $400k as the price of the F40 new in 1989 then there a number of ways of computing the relative value of the US dollar in a given year compared to another year. A simple Purchasing Power Calculator would say the relative value today(2015) is $764,000.00 and therefore the real prices of F40's today are only twice up on this. This answer is obtained by multiplying $400000 by the percentage increase in the CPI from 1989 to 2015. The best measure however of any relative value over time depends on if you are interested in comparing the cost or value of a Commodity , Income or Wealth , or a Project. Cars are technically none of the above and so therefore using the CPI would probably be appropriate.

However if you want to compare the value of a $400,000.00 in a Commodity in 1989 there are three choices. In 2015 the relative:
real price of that commodity is $764,000.00
labor value of that commodity is $777,000.00 (using the unskilled wage) or $840,000.00 (using production worker compensation)
income value of that commodity is $954,000.00

If you want to compare the value of a $400,000.00 in Income or Wealth, in 1989 compared to its relation in 2015 you can use:
historic standard of living value of that income or wealth is $764,000.00
economic status value of that income or wealth is $954,000.00
economic power value of that income or wealth is $1,230,000.00

If you want to compare the value of a $400,000.00 Project in 1989 there are four choices. In 2015 the relative:
historic opportunity cost of that project is $673,000.00
labor cost of that project is $777,000.00 (using the unskilled wage) or $840,000.00 (using production worker compensation)
economy cost of that project is $1,230,000.00

So if you want to use an average from all these, you can see that if an F40 today is 1.3 million say, it is only at best maybe twice the relative value compared to 1989 and so not as high as you think.

All the above are from various tracking websites on relative worth of currencies so they are not my figures.

 

huh? I said the prices are comparable to the past bubble. I did not compare to the as-new price...

All the rest you have typed doesn't mean much. I know many ways to measure relative wealth, costs etc. I used a simple measure to compare pricing in GBP and the simplest is to use inflation. My point was to just say the 5x comparison of 1mm back then vs now was way, way off mark. Which it was. Nothing you typed goes against that... In fact, not even sure how your analysis differs materially from my own, which was extremely simplistic 1.025^25

 

Well you see the difference is that in 1989 the prices you saw for the F40 then were pure speculation. There was no "relative" value to adjust as the cars were new and that 5 fold increase happened within a year of the cars being produced. That's why those prices are not comparable with comparisons now where you have to factor in inflation adjustment etc. So maybe we are saying the same thing. It's just that I'm tired of hearing people mention the F40 and other car comparisons from 1989/90(not saying u necessarily brought it up). No markets are ever identical of course and times now are different to then. I'm not saying we should all forget the past entirely just put everything into context. Again that's all and again not necessarily saying u brought it up... : )

 

I actually think the F40 is less overvalued than many cars out there (I would rather be holding an F40 than a $2mm enzo, for many reasons). My post was to get rid of the notion that GBP was worth 5x more in 1989... it was more like 2x (perhaps a bit more, perhaps a bit less). As your math showed, it has since gone up with inflation plus another 1x multiplier or so on top (at current prices). So something like a 100% price increase vs, the inflation adjusted figure. Also, I think the original spec euro cars were a bit cheaper back then, so for some cars a bit more.

Of course relatively high production numbers did no favor to F40 values...

 

The reason I gave to the value difference over 25 years was based on real asset inflation over that period, we were buying 3 bedroom houses for around 45,000 GBP from what I can remember the same equivalent house now would be around 200,000 GBP.
One of the biggest differences in the market today is the new super car.. 10 years ago an Enzo was 500K list, today a La Ferrari is listed at around 1 million pounds, the next hyper car in 10 years will be 1.5 - 2 million and so on, the same is for Porsche with the Carrera gt and the 918.. 300 GBP and 650 GBP, so everything else will get dragged up with it... I agree that some of the moves to levels now might seem irrational to some.. but maybe people should be taking on board that the world is so very different to nearly 30 decades ago and move with the times.

 

Like I pointed out, you can't use real estate as the comparison. It is entirely localized and most areas and for most people, real estate has just moved with inflation historically. Any deviation is typically sustained only in A) select ultra premium markets (London, NYC) B) developing countries. For most other markets, big increases are followed by declines...

The rest is what I like to call "false inflation" since you get more with the dollars. Most typically misunderstood is house price growth. People look at median houses (or even "median 3 bedroom" houses) and see price growth... but fail to consider median square footage has risen by xx%. In 95%+ of real estate markets, you will see modest inflation, and even more modest when you adjust for the size of the house / property in an already-developed area.

As for the hypercars, I think that's a valid point. However, similar as above, you can't just look at the prices in isolation. A LaFerrari is a lot more car than an F40. I personally prefer the F40, but the amount of technology in the LaF is leaps and bounds greater. You can't just compare the price increase. The F40 was the first of the recognized super cars / hyper cars, along with the 959 (I'm setting aside Miura, Countach, Daytona). But it was extremely evolutionary from the 288 GTO. The 959 was more akin to the modern hypercars, in that it used more advanced tech than its sister cars... however, like the Veyron, it was a major per unit money loser for Porsche back then, so easily would have been priced much higher had they wanted it to be profitable.

The modern hypercars, incorporating hybrid tech, become relatively more expensive to make. A veyron was a loss maker for VW, even at the price charged. So I can't agree that this somehow provides that much support for the super cars of the past. In fact, if that were true, I think we would have seen more price support for the F40 and those cars after the Veyron was produced, or even after the Enzo or Carrera GT... but prices were relatively flat.

It is fine to theorize about factors x, y, or z, but at the heart of it is psychology -- expectations for further price increases, flipping cars, fear of not affording the car later, etc. Good data would make this easier to track, if we saw the time that these cars are held vs. flipped, and dealer activity with cars today vs. 8 years ago.

 

The problem you have is that your initial premise is entirely incorrect, i.e. a new F40 being worth $400K in 1989. That was the LIST PRICE in 1989. But the real "street" price in 1989 was over $1,000,000. I know this from personal knowledge because at that time two friends and I were in the process of negotiating to buy a Ferrari franchised dealership. It had been allocated but not yet delivered just one F40 and the selling owner wanted to keep that car when delivered. And the value attributed to the car in the deal was $1,000,000. That broke the back of the deal and we never bought.

 

I disagree . Although of course there were F40's selling for 1 million + I know for a fact that there were loyal Ferrari customers who were sold cars for $400k in the same way Enzo's and LaF's have also been sold cars at retail price. Therefore imo the retail price is still the one you use to calculate changes over periods of time, when comparing different cars if you want to use indexes such as the CPI..

 

It is tricky -- and I don't know (without giving more thought to it) which I'd say is the right measure.

Both the F40 and LaF were being sold in "bubbly" periods. The F40 had a lot of volatility in its price because of three factors: 1) initially they announced too few cars and the price they announced at was too low given demand/supply 2) during the period of production a bubble more broadly came to being, that impacted the F40 along with many other cars and 3) Ferrari ultimately produced far more cars during the production run than people anticipated.

So the supply side and demand side was moving a LOT for the F40 because of factors within and outside Ferrari's control.

The Enzo came out during a more "normal" period...

 

Of not securing the dealership? Which part of the USA? Similar "street" pricing with TR too?
Jack

 

"1970 Hemi Cuda Convertible Sells For $2.25 Million At Monterey Auction"

ah yes, the bubble has finally burst...

 

Today another bubble bursted......the classic cars are for over 15 years a sound but more importantly nice invest.....

Ciao
Oscar

 

the US money supply has been increased by 400% by the current administration through their quantitative easing... which has affected the values of assets... the current represented values are actually diluted, in that more of the cheaper currency is needed to effect a purchase of anything

 

More than one bull market has come to a close this year.

 

I don't know how much this observation will add to the discussion, but here in China, the market for luxury cars is extremely bad. Porsche is offering RMB 3million price reductions (or a free new car of their choice) to buyers of the 918 in order for them to take delivery. A LaF is sitting in a junkyard-like 2nd hand luxury cars market together with oceans of unsold used Bentleys, Benz and Porsches, the asking price is less than Chinese MSRP. My local Ferrari dealer is cold calling people to sell the 488. China went from Bentley's biggest market to 2nd place tie with Europe, and we all know how Europe is doing. BMW is offering 25% discounts on M3/4s. Why is America still feeling good? I have no idea.