Can Classic Cars Be a Good Investment?
Back in 2008 Barrett-Jackson touted their "Barrett-Jackson Mini-Index" had outperformed the Dow Jones, S&P 500, and even gold over the previous five years. Their data showed a 16.4% return for collector cars vs 4.0% (S&P 500), 5.1% (Dow Jones), and 11.2% (gold). The press release by Barrett-Jackson makes it seem like classic cars are true investment opportunities until you read the details. The models used in this index are:
1957 Ford Thunderbird
1967 Jaguar XKE
1967 Ford Mustang Shelby GT500
1970 Chevrolet Camaro Z/28
1970 Plymouth AAR ‘Cuda
1965 Austin Healy MK III
1967 Chevrolet Corvette 427/435
Most of these models are out of reach financially for the average collector, and I have a few issues with this index.
1) These are already high end collectibles and command premium dollars. I question if these models were selected years ago for this index, or just recently before this press release. Hindsight is always 20/20, and “cherry picking” the best performing models after the fact is a bit misleading. Just like with stocks and bonds, you need to make the right choice BEFORE the appreciation.
2) Even if the models in this index were selected well before the press release, cars have additional costs involved over the course of ownership, unlike stocks, bonds, and gold. These include:
- Interest paid if a loan is used for the purchase
- Maintenance Fees
- Storage Fees
- Restoration if required
- Selling Commissions
Hagerty's Cars That Matter "Blue Chip" Index, similar to Barrett-Jackson’s index, showed a 61% increase in the 25 most popular classic car models between summer 2006 and summer 2010, when the economy overall was in the tank. This is a quite dramatic increase, and has not been seen previously in the market quite like this. I would venture to believe part of the increase can be tied to the overall economy and market. When the stock market is so volatile, investing your money into a tangible item like a collector car may appeal to many.
Just like the stock market, the collector car market can be very volatile. Take for example the early 1960’s Ferrari 250 GTE four-seaters, which have always been a popular model. In 1987 these were selling for $30,000 to $40,000, but by 1990 they were up to $250,000. Shortly after it reached it’s height, the bottom fell out and it dropped back to $50,000, and only recently has it reached $100,000 again.
The last problem with high end collector cars and their high prices is that for this to be an investment, you need to sell it at some point to make the profit. This means selling at the height of it’s value, but most people who buy collector cars buy them because they enjoy them, and selling them is not an option. In many interviews with Jay Leno, an avid collector car buyer, he states he does not buy cars as an investment, and doesn’t plan on selling them. So if a wealthy collector buys a car at an auction and they drive up the price only because they really want the car no matter what, how does that affect the true value of that auto? It was bought as a collector or “toy” for the owner, and not bought as an item of investment.
The Average Car Collector
So I’ve shown that in some circumstances, high end collector cars can appreciate and make a profit for the owner, but what about the average “middle class” buyer? This is likely tougher than the higher end market. Many collector car buyers "trick" themselves in saying their average classic car is an investment for themselves, which I truly endorse if that makes them feel better about the purchase (or is convincing for the wife to approve), but in reality over the course of the years you likely will not see a return above inflation over the purchase price.
To make a profit, the car needs to appreciate above the rate of inflation. Restoration can add value to a car, but that also takes cash and time, if you are doing the work yourself. Just like with purchasing the right stock at the right time, or a high end restored car at the right time to make a profit, you need to select the right car that needs a restoration, and then make that investment. That means multiple decisions need to be made correctly to achieve a profit.
New Collector Cars & Limited Editions
New collector and specialty cars face the same depreciation as any other new car; as soon as you drive a new car off the lot, you have lost around 20% to 30% in value and this drops for about 15 years where it usually bottoms out. So when buying a newly built Ford Mustang GT500, it will depreciate for about 15 years before it bottoms out, but there is no guarantee it will rise in value again. You would need to hold onto this car for decades to see it appreciate above the purchase price, and when you factor into the years of maintenance, storage, insurance, and every other factor involved with owning a car, this is not an investment purchase.
If you are trying to look for potential investment cars that are limited editions or specialty releases such as anniversary editions, cars from the late 1990’s would fit this criteria. They are near the bottom of the depreciation drop, and may be poised to increase in value, BUT THERE IS NO GUARANTEE any will rise again in appreciation.
Custom Cars & Hot Rods
In my opinion, the custom car and hot rod market could see big rises in appreciation in the future. T.V. shows and brands like Chip Foose are fueling a new craze in collector cars with these custom cars. Customizing an old car which may not be a particularly exciting model to begin with could breathe new value into a car. There are many 1966 Ford Mustang's out there, but who has a 1978 Corvette with a Camaro tail light/rear end? Or an old school grocery getter station wagon with real wood panels and a 454 big block?
Barrett-Jackson auctions used to only feature high end truly rare stock cars, but today you see custom cars built by Chip Foose and other designers, and they seem to be growing in popularity. What's great about custom cars is that you can ride in an old school body, yet have the latest generation of comfort with the interior and under carriage making for a very enjoyable ride. I'm waiting to see a "souped up" Chrysler K car. Ok maybe not.
The bottom line is you should be buying a classic or collector car for your enjoyment, and if it appreciates in value you have an added bonus. Classic car and collector car values do not generally depreciate unless you have bought a very high priced model, which leaves room for a drop with less market interest. Buying your average classic car should give you years of pleasure and when you are ready to sell, you will hopefully have not lost money.