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Early 1990s crash of collector Porsche and Ferrari values...how did it happen?

Discussion in 'Ferrari Discussion (not model specific)' started by MonoSpecchio, Dec 11, 2015.

  1. maxflynn

    maxflynn Karting

    Feb 9, 2015
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    Since buying my first car earlier this year, not for investment value mind you, I have found that Ferrari coyld care less about owners of earlier "vintage" cars. Especially higher volume cars, ie 308/328, testa. Classiche starts at what, $5000, to look up an old build sheet and take a couple of hours making sure all the parts are correct. Including the parts that are NLA and that the factory won't reproduce, or get reproduced.

    Having said that, why can't a correct, excellent running andell presented 3x8 be worth around $50-$80 k all day long, market correction or not. Even if they built a lot (although I think 11,000 units over about 13 yrs is not that many), how many still exist, and how many of those are junk, or were converted somehow? I bet the number is a lot lower than most people think. And besides, most of the variations, were very competent, beautiful cars.

    My 2 cents.
     
  2. Bullfighter

    Bullfighter Two Time F1 World Champ
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    I think 308/328s are easily worth $70K-$80K, and would be fairly priced there for most examples. However we're seeing asking prices of $200K+ for some lower mileage 328s, and 512TRs well over that. In some cases that represents a tripling in value over two years for cars that are not rare because they are typically babied, live under car covers, and come with a box of trophies. The supply is ample and consistent.

    We're seeing a lot of fishing at the high end, and no upside for buyers at this point. Time to cash out? Probably. No one spends $250K or $300K on a 512TR to drive.

    I have a couple of cars on my wish list -- concours correct blu sera 308, black 911S 2.4L sunroof -- but at current prices I'm more or less waiting it out. I think others are starting to feel similarly.
     
  3. jjmalez

    jjmalez F1 Rookie
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    Good lord, you're gonna make me dig out my old Ferrari Market Letters from the basement for this...

    ;)
     
  4. TooTimidAndCheap

    Jul 19, 2015
    105
    You saved 'em for a reason, now let's document evermore for posterity!!
     
  5. gimmea250swb

    gimmea250swb Formula Junior

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    Just read through the whole thread. Great commentary. jjmalez, if you're looking for a place to start, you may consider a 250 SWB or 250 Lusso (blue chip with decent volume. I'd do it but my dad has all the FMLs.
     
  6. Tenney

    Tenney F1 Rookie
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  7. wizig

    wizig Karting

    Jul 8, 2006
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    Talk is cheap, jjmalez (just kidding), as I actually went to my basement and dug through my Ferrari Market Letters from the 1980s/1990s.

    Out of respect to FML's copyright, I won't reprint what you can buy from them (IIRC, if you subscribe online, you can access back issues...but since I am no longer a subscriber I don't know how far back can be accessed online).

    But here is a good example, from the July 1991 FML (which published 12 Cylinder asking prices from 1976-1991), it shows the "high" asking price of original 365 GTB/4 Spyders as:
    1986 $ 290,000
    1987 $ 650,000
    1988 $ 895,000
    1989 $2,000,000
    1990 $1,450,000
    1991 $ 975,000

    I am sure they fell much lower, after 1992 (Gooding sold one in 2005 for $495,000 including buyers premium). The FML numbers are "asking" prices, so they are probably higher than selling prices (particularly post 1990, if sellers were slow to accept the reality of a falling market).

    Since I followed the market for these cars at that time, I find this thread quite interesting.

    I fully agree with the philosophy that "this time is different" is a good way to misjudge the market; but there are 2 potential differences that I have not seen mentioned:

    A) The Internet. There was a great deal of puffery in the early 1990s bubble (a polite way of describing what might sometimes have been fraud). Dealers claiming to have sold cars at inflated prices, sales which might never have occurred. IIRC there were unauthorized dealers in Kansas City and in Seattle running ads in Autoweek and elsewhere lising cars "sold" at increasing prices....easier to get away with in the days of print ads, but today people would be calling "BS" on FerrariChat (and asking for serial numbers). Also IIRC Ferrari originally announced 399 F40s resulting in a runup in prices, but actual production was closer to 1400 ... harder to get away with today, as there would quickly be a registry of over 400 sightings.

    B) Financing/Banks. This was touched on briefly in an earlier post, but warrants more discussion. Dealers (mostly unauthorized dealers) financed their purchases with bank debt, so they made money if prices rose, but it would be the bank's loss if the dealer defaulted when prices fell. Further, when the banks forced the cars to be sold (either because they took back the collateral, or they forced the dealer to sell them) they increased supply in a falling market, driving prices down further. It is unclear to me if "this time" the buyers are individuals or dealers.

    I don't know if these differences will soften (or shorten the duration of) the predicted correction
     
  8. Bradwilliams

    Bradwilliams F1 Rookie
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    This has been going on to some degree on the forum. To what degree is always very difficult to measure. But people have made claims that x dealer sold y car at a high price, has been selling them at high prices. And when questioned for proof, they produced nothing of the sort.
     
  9. anunakki

    anunakki Five Time F1 World Champ
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    I try and explain to people that this factor is why you cant always make a direct correlation to previous events.
     
  10. DriveAfterDark

    DriveAfterDark F1 Veteran

    Jan 1, 2007
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    I am an enthusiast buyer and I hate the speculators with a passion. This is one of the rare threads where I read every single post and appreciated all of them. FerrariChat at its prime.
     
  11. Feudal Serf

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    #136 Feudal Serf, Jan 3, 2016
    Last edited by a moderator: Sep 7, 2017
    Wizig
    Thanks for taking the time to look this up.
    Your points below about A)Internet B)Finance is well received.

    I'm a student of market history for as many asset classes that i can absorb.

    IMO the primary difference between a collector and speculator is LEVERAGE !

    This is basically what you say below. The problem with the 'brokers' is leverage exponentially expands buying power on the way up and FORCED Selling on the way down.

    There was a lot of leverage in the late 80's in the collectable market which pushed prices higher than they should and created an 'air pocket' of price discovery on the way down.

    Today, I don't have proof but I'm seeing signs of private pooled capital purchase and storing of cars, albeit not excessively. Not seeing "investment loans" for hagerty 100 classic cars yet.

    Internet= another way of saying that the market is not US centric, is global and broader. I don't believe this means "its really different this time" but we have a new market depth and immediacy of sentiment.

    Graphs attached:
    haggerty, I interpret the blue chip collector cars as the place for the 0.1% of wealthy.
    They moved money outside the banking sector into cars due to institutional instability and solvency doubts. This is an impressive gain that is not likely to be repeated in the next 10years.
    But it does not guarantee a crash. Prices were undervalued 1n 2007 and now they are overvalued. Correction and new higher base likely.

    The haggerty 100 is more telling of the broader market, suggests to me that this has to slowly catch up while the top tier cars consolidate. This will be a healthy structure. If you look at the H100 curve and move it back 2-3 years it suggests a lag of just over 2 years before broader car market reacts to top tier. Interpret this as representing the "public" enthusiast and not the flight of capital from the 0.1%'ers

    Collectable market Graph, Looks at subgroups of collectable markets over time. This suggests the car market is long in the tooth. 5 and 10 yr returns will likely disappoint. Near term who knows.

    Anyway, I enjoy my cars and pay cash for them. They are not investments but assets that I adore. Buy what you like, but if you must research obsessively and pick a car that has appreciation potential that is understandable. There are many guys here with financial success in life and apply some of their savvy to ferrari ownership-good on ya.

    Cheers
    FS







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  12. Bradwilliams

    Bradwilliams F1 Rookie
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    Not as much as I do :)

    Do not fret, the game only marches on as long as the prices continue to rise. Once the price ceiling is reached, the game ends because there is no more money to be made and they're on to the next. No tree grows to the sky. It is that moment that the pigs begin to leave. And the naive ones who chose to stay have alot of explaining to do to the bank
     
  13. m5guy

    m5guy Formula 3
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    #138 m5guy, Jan 3, 2016
    Last edited: Jan 3, 2016
    Late to the party here, but I just read this post and the hypothetical scenario proposed here is deeply flawed.

    Market competition will affect the trucking baron's ability to buy another collectible car more than the rise in fuel prices. When fuel prices go up quickly (as they did several years ago) the customer pays for that increase through an invoice line named "fuel surcharge." Thus, as the customer you are still paying your agreed cost per pound for the class of goods you are shipping, but the fuel cost surcharge is tacked onto the bottom of your invoice from your freight company.

    Market competition on the other hand, from a more efficient competitor who plans their routes better, maximizes the number of shipments on each trailer, etc, will crimp Mr Trucking Baron's profitability as he cuts his rates to compete without the offsetting reduction in his operating expenses.

    Bottom line: Fuel price spikes are paid by the customer. Lacking sufficient competition, the Baron can charge whatever he wants to the customer.

    References for my above statement: The company I work for ships almost a half billion ($500MM) in goods by truck to our wholesale and national retail accounts each year.

    Now back to the discussion about collectible cars....
     
  14. ttforcefed

    ttforcefed F1 World Champ
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    excellent post

    the idea that a fuel price hike will impact current valuation of cars is outright laughable and comedic. we have been in a recession for a while and there has been no pop of a bubble.
     
  15. paulchua

    paulchua Cat Herder
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    Genuinely curious on why the hate for the high end collectible market? I don't plan or have the means to horse trade in pre-1970 classics or limited edition supercars (288,F40,etc). As an owner of the most modest Ferrari, I look in awe and quiet appreciation on the gains, happy for my Ferrari brethren and their price action success.

    Ive seen echoes of resentment from the recent crash of 09' and the irresponsible actions of some investment bankers, but that would have no parity in this situation (unless you think the depression high end car market will take down the US economy)

    These 'speculators' have put their money where mouths are, and most importantly have not done it with my subsidized tax dollars. They deserve all the success for taking on this risk.

    The only sector I can conclude may spur resentment from the tide lifting all boats is the enzo/fiat era with 3xx, tr, and 400? Are posters here angry they were priced out of these models? A desire to aquire one of these specific cars drives the motivation for a crash?

    Perhaps there is some exotic (excuse the pun) short instrument one can take on the high end classic car market that I am not aware of.
     
  16. sherpa23

    sherpa23 F1 Veteran
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    #141 sherpa23, Jan 4, 2016
    Last edited: Jan 4, 2016
    What proof do you want? You want someone to offer you someone else's bill of sale or maybe their tax returns? I don't understand what you could possibly want that someone can offer to show you proof of someone else's transaction. Sometimes, all you have are other people's words.

    Well said, Paul. If someone has the money and wants to play the game, good on them. It's a dangerous game and not one that I would personally want to play but with risk comes reward. It's like someone ripping on Ernie for being successful in the stock market - he spent years learning how it works and taking the risks. What's wrong with that?

    Furthermore, there are lots of people buying cars still because they love them. They have had good runs in business and now is the right time for them. Are they not going to buy because someone else refers to them as "pigs" or worse? Good on them for achieving a lifetime's dream.

    Lastly, I don't know what the bank has to do with any of it, as was mentioned. Most people I know pay cash for their exotic cars. Their bank isn't going to give one hoot about it.

    There just seems to be so much vitriol and hate for others. I can't imagine how small someone's life has to be to spend so much time hating others who are just going about their business and doing their thing.
     
  17. Caeruleus11

    Caeruleus11 F1 Veteran
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    Great points above. Life is short, eat dessert first!
     
  18. paulchua

    paulchua Cat Herder
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    #143 paulchua, Jan 4, 2016
    Last edited: Jan 4, 2016
    Also, unless there is some short instrument one is engaged in...then thus situation presents an evergreen non expiring contract, a wise investor (if their convictions are sincere) would willingly jump on the valuation band wagon to further exaggerate the disparity to lock in maximum price adjustment.

    So are the bitter commentators priced out? (would love to hear personal annecdotes) or is it what it appears I fear it to be....
     
  19. LV Eric

    LV Eric Formula Junior

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    I'll get to this later,

    I'll use real numbers from my business when gas went over $2/gal first time ever, then $4/gal in 08.

    On a iPad and too much to type, the truck baron was just a generic example. I'll drill down on it.


    What do I know?

    Ya just might be surprised;)
     
  20. TooTimidAndCheap

    Jul 19, 2015
    105
    10 bagger in just 3 years. WOW.
    Thanks for posting this.
    I would love to know where this one bottomed.
     
  21. Bradwilliams

    Bradwilliams F1 Rookie
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    #146 Bradwilliams, Jan 4, 2016
    Last edited: Jan 4, 2016
    495k asking on the high end in 1992 270k on the low
    GTC4s went all the way to 70k for the clean drivers

    And those are asking prices

    Not all enthusiasts are priced out of the market. On the contrary, many are buying other cars that are good value and fun, which is what we do in any market. Motivated for a crash? Absolutely. Because many want to buy a car for its ACTUAL value and not Janet Yellen's.

    And yes, if you are still currently flipping cars in the present (market up already 300 percent in a matter of less than two years), then IMO you are a pig. Because only a pig would still be emotional enough to continue wagering and leveraging money on rapid appreciation on an old car. They're not cash machines, they're deteriorating machinery. The normal market prices and values the car for the experience it delivers to the owner and based on its availability to the market. The current market prices the cars based on how much money can be earned off of them in a 6 month period and availability and production number mean squat. And saying "collectors are still buying" to validate the prices is no different than saying "speculators are still buying after the market cools off and tanks. They're both a minority in each scenario. And if you still have doubts, look at the classifieds in the present, almost all dealers and hardly any private sellers.

    Must be a great time to be in the warehousing business
     
  22. LARRYH

    LARRYH F1 Veteran
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    I think you are forgetting that someone is selling cars at those high prices you hear about so if one buys a car and it triples in value in a few years whats wrong with selling it and buying another car that may have also tripled in value but if i am using money that i have accumulated from sales of other cars the value is all relative ... ..
    not everyone is jumping in some have been in and have made money on cars they are now replacing... so if you look at it that way its not that big of an issue .....
    if the pricing is a concern then i simply stay out of the vehicle...till it is not a concern and sometimes that is not because it goes down in value..
     
  23. Smiles

    Smiles Moderator
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    I'm amazed at how young most of you are.

    There's a persistent George Santayana quote that may or may not be relevant.

    Take a look in Hemming's Motor News, February 2016. There's an article on why the Maserati Bora's price will soon be stratospheric.

    We heard the sam thing circa 1990 about how Ghibli spiders were rarer and should therefore be higher than Ferrari Daytonas.

    When people start justifying the increasing price of adjacently interesting cars, WATCH OUT!

    I think that this slide will be more gradual, but the times are nigh. Starting right now.

    Matt
     
  24. ttforcefed

    ttforcefed F1 World Champ
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    I look at it differently. no one is forcing anyone to buy cars or to put money to work.

    has anyone actually looked up the definition of speculate? here it is from the Merriam-Webster dictionary? (shld we debate the quality of the source?)
    "to invest money in ways that could produce a large profit but that also involve a lot of risk"

    whenever you buy any asset, you are speculating. professional investors are paid to speculate. Speculators shld be embraced by the true collectors, im not sure why that's not clear and obvious to everyone. Speculators increase the number of transactions and they take on the risk of price discovery. As a collector I can disagree and pass at todays prices or I can hope at some point prices come back to me.

    Car dealers are in the business of making a profit. When dealers and owners sense there are more buyers than sellers, prices go higher like now. In 2009, dealers and owners sensed there were more sellers than buyers, so prices went down.

    who cares what hemmings says? they need to write/publish something. Whether we like it or not there is a massive industry out there that goes to work every day trying to make money from selling, fixing, restoring cars.

    if you think prices are too high, that can be for many reasons: net worth, actual value you place in cars, other obligations. But I wld argue if you are true enthusiast you aren't one of the guys putting supply on the market.
     
  25. paulchua

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    #150 paulchua, Jan 4, 2016
    Last edited: Jan 4, 2016
    With subjective investments such as art or wine, traditional valuation instruments are off the table. With well-known paintings (let's take an extreme example, the Mona Lisa) we have provenance, projected income from loaning to museums (hypothetically), and historical and pop-culture appeal. So you can theoretically do a back of napkin P/E calculation.

    However, for relatively less known art such as Gaugin's 'Nafea Faa Ipoipo' ... is there a reason that it should be worth 300 Million? Assigning objective 'actual' value on a non-income producing assets becomes more and more opinion than fact. Warren Buffett value investing is much more difficult in situations where you are bidding on what Luciano Savini and his dog Rocco found in the dirt.

    From what I've observed personally and on the net, the very affluent car collectors (i.e. Bolkiah, Ambani) ultra high-end market seems to be populated by folks that are not very concerned if the Ferrari they just bid on costs 400K or 600K. Cases such as Ferrari prices I argue is even more tied to what somebody is willing to pay for said property 'now' than any real objective measure.

    Of course mere mortals such as myself would count every penny in the same situation, so yes, I get it. Not everybody has the means of a Leno or Lauren. But even for the non-uber rich, Enzo era (Pre 1970) cars were quite expensive even before the recent run-up. Brad, are you lamenting a missed opportunity that did not exist 5 years ago to begin a collection of high-end Ferrari?

    As I said, if you feel there is a wide disconnect, then you should applaud the continued 'faux-demand generation' - it will only make your predicted inevitable fall more dramatic. Also, as friends with many that practice arbitrage, it's a cornerstone for any efficient market - can disconnects occur? (of course) Capitalism is not perfect, but as I tell my kids "capitalism caused the great recession, and capitalism is what pulled us out" If values are due for a plunge, then it is just a matter of time before values revert to the mean eventually - because that's what markets do. Sit tight, or better yet jump on the valuation bandwagon - the larger the gap, the larger the fall. You should profess your support for the 'false' run up, the higher it gets, the larger your probability (and dip) to the mean. Again, as a follow-up, assuming prices crash..say 50% and 75% for Enzo Era cars, which cars do you have an eye on? Based on the passion of your convictions, it would appear the recent run up has severely affected your ability to procure these vehicles.

    In my hypothetical scenario, I for one perhaps may acquire a 348 or 355 as a stablemate, but thankfully the run up on that has not been as severe as say a 250, are you in the market for one of those, or perhaps a Dino or Daytona?

    Brad, this is correct, but you cannot have it both ways. It's the very supply and demand forces you cite that can cause outliers in valuation. With a limited supply, your deviations will be more extreme.

    Yes, automobiles (Ferrari included) are non-durable goods - 100% fact. Hence why you can get a 458, FF, Cali for less than MSRP (for all the stated reasons you gave above). However, vintage Ferrari reach an inflection point where (for the very supply/demand reasons you gave above) starts a reversal to appreciation (except Mondials of course) ;)

    Once Ferrari has firmly crossed this line (think Dino, Daytona) - the 'value' is firmly what some Arab Sheik, Chinese Magnate, Russian Oligarch, or Indian Tycoon says it's worth *that* day. You've made it abundantly clear that you feel some of these 'values' are absurd, hey I think what people are willing to pay for literally drips of paint on canvas (Jackson Pollock) are crazy for years..that doesn't seem to stop his art from appreciating year after year....
     

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