Intrinsic Value of Classic Cars in the US And the Impact of Global Economic Slowdown

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Intrinsic Value of Classic Cars in the US And the Impact of Global Economic Slowdown

The global automotive industry is bracing for hard times. Automakers both in the U.S. and the rest of the globe are facing reduced demand. New car dealers are offering discounts and better deals to attract car buyers while the used car Dealers slash their pricing in tandem with lower price structure for new cars. What are the implications on the classic cars segment?

Generally, we can divide the classic car segment into the Mid-Range and High-End category and it all boils down to affordability. For the mid-range classic car owner, the main hurdle is keeping and maintaining classic cars and they do demand a lot of attention, maintenance costs and a permanent storage space. In recessionary times, do the owners have the holding power to keep their cars? Are they driven by hard times to part with one of their more valuable asset for cash? There are many reasons that a classic will end up in the market whether in good or bad times. We as humans can give all sort of reasons to justify our cause. Let’s examine the questions rationally.
The mid-range classic cars are generally a lot more affordable and include brands such as Ford Mustang, Chevrolet Corvette, AMC, Austin and others. Such cars consist of makes that are popular with the masses and are produced in quantities that satisfy demand at the time they were built. As years and decades passes, parts from similar makes and models are cannibalized to keep the existing cars in the market running. The internet has eased the traditional burden of sourcing hard to find spare parts.

High-end classics would be models from automakers like the Aston Martin, Bentley, BMW, Ferrari, Jaguar, Lamborghini, Mercedes-Benz, Maserati and Rolls Royce. Admittedly, there is a potential overlap in the definition of mid and high-end classics when it comes to brands that also produced cars in mass quantities. We will not dwell into the definition of mid and high-end classic here and will leave it at readers’ discretion.

It is generally true that high-end cars command better preservation of value in bad times and high appreciation of value in good times. Demands for such cars are not limited to the domestic market since the brands are well-known throughout the world and the presence of such makes and models in many other countries. The global appeal means the market demand is not limited geographically and coupled with very limited availability of each make and model, is the recipe for high capital appreciation for such cars. Secondly, at the time of production, demand for such cars are limited due to a combination of factors such as upper range models, limited production models, limited demand for such models and higher priced models. Fast forward 30 to 50 years later, finding parts becomes a difficult endeavor even on the internet and some sellers are resorting to auctioning of spare parts to the highest bidder. All these factors translate into higher intrinsic value and demand for such cars.
 
To demonstrate the preservation of value of classic cars, just take a look at the price for classic auctioned as listed by RM Auctions below:
 
Top 10 World Records for Car Auction

1 1961 Ferrari 250 GT SWB Cal Spyder R M May-08 $10,894,400
2 1931 Bugatti Royale Type 41 Christie’s Nov-87 $9,800,000
3 1962 Ferrari 330 TRI/LM R M May-07 $9,281,250
4 1937 Mercedes-Benz 540 K Special Roadster R M Oct -07 $8,252,201
5 1937 Bugatti Type 57SC At alante Coupe Gooding & Co. Aug-08 $7,920,000
6 1929 Mercedes-Benz 38/250 SSK Bonhams Sep-04 $7,443,070
7 1904 Rolls-Royce 10hp Bonhams   Dec-07 $7,254,290
8 1962 Ferrari 250 LM R M May-08 $6,979,000
9 1931 Bugatti Royale Type 41 Kruse Jun-86 $6,500,000
10 1962 Ferrari 330 TRI/LM R M Aug-01 $6,490,000
 
Although most of us do not own such high value and sought after cars, we do see continuous capital appreciation of our classic as the cars aged gracefully. The mid-range will obviously be affected by the economic situation but for the super-wealthy such as collectors with millions at their disposal, there are not going to dispose their cars during bad times. Losing a few millions of their net worth is not gong to affect them and that explain why high-end classic are rarely affected by the current turmoil. The only effect seen so far is less take up rate for high-end classics and lower closing bid for the mid-range.

In a recent report by BBC News dated Nov 3, 2008 a high profile auction organized by RM Auctions held in London where as much as 30% of the classics were not sold or did not meet the minimum reserve. However, it certainly attract a lot of attention with a 1965 Ferrari LM Berlinetta and a 1959 Ferrari 250 GT Tour de France Berlinetta sold for £2.26 million, and the McLaren F1 made £2.53 million. There are no shortages of Buyers in the market but the timing has to be perfect and the right car has to present itself when the Buyer comes along. When an opportunity present itself, the market for such cars are supported by the unaffected wealthy individuals and they will not think twice about buying such cars as long as it is available in the market for sale and the price is right.
 
With the global drop in the value of British and U.S. currency, sourcing by classic collectors around the world will fuel demand for such cars further. For those that owned mid-range classics, this is a good time to look for salvage classic cars and parts for restoration works. For the high-end classics, the impact is minimal and any opportunity to acquire at lower prices means adding another works of art to an existing collection.