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Collectable cars - more satisfying investments than anonymous hedge funds?

Richard Kennedy asks if classic car speculation holds more pitfalls than promise?

Derisory interest rates, a static property market – these are uncertain times. So where’s a wily investor to park his or her hard-earned buck?

Well it depends how adventurous they happen to be. They could, for example, turn their minds to the elegant lines and brutal heft of a 1957 Aston Martin DBR2. Assuming, of course, they have around $3 million to invest. Then again wouldn’t anyone’s heart beat a little faster with an immaculately restored 1965 Ferrari 250 LM accumulating value in their converted stable block?

It’s got to be better than allowing $2 million to wither away in some grey offshore account.

For most of us, the idea covetable motor cars might be viable investments seems too good to be true. And sometimes it is. In the late 1980s, when fiscal curves seemed locked in perpetual climb, speculators with more money than knowledge of the classic car market pumped up prices until the bubble burst.

Then the Dow crashed, prices plunged and in some sectors took over a decade to recover.

Serious collectors still shudder at how some big ticket marques shook off three quarters of their value in a matter of months.But of course it was rarely serious collectors who took the hit.

Then as now classic car speculation was a minefield for amateurs. Maxim one: don’t risk it if you can’t afford to lose it.

Bugatti coup
Yet it’s not totally unknown for amateurs to pick up a bargain. Back in 1954, canny scrap-metal dealer Edmond Escudier risked 120F ($20) at a local bankruptcy sale in rural Provence.

In September 2005, the 1928 Bugatti Type 35B he acquired went under the hammer at Bonhams’ Goodwood Revival auction. It turned out this rather special garage sale snip was the same 1928 Type 35B that had won the very first Monaco Grand Prix.

Pre-sale publicity suggested interest in the legendary 35B Bugatti might drum up something closer to $3.5 million. Maxim two: take all pre-sale publicity with a pinch of salt.

M. Escudier’s Bugatti shared the Goodwood spotlight with another classic from the same stable – a 1935 Bugatti Type 56/50B Off-set Seat Grand Prix car, built out of parts from the Molsheim factory’s ‘secret store rooms’. The composite replicates the rare off-set seat 4.9 litre supercharged car driven by Robert Benoist in the Grand Prix de l’Automobile Club de France at Montlhéry on June 23 in 1935.

In the event, the 1935 Bugatti sold for $1.4 million and M. Escudier’s show-stopper failed to make its reserve.

At the top end of this market – and we’re talking about the $1 to $5 million items – the handful of billionaire collectors that comprise this rarefied world seems hell-bent on thwarting the expectations of leading auction houses. Sotherby’s recent Maranello venture is a case in point.

In June 2005 this 1956 Boano sold for $410,652 at Sotheby's Maranello sale.

Maranello auction
On paper it looked like a dream ticket. After an absence of over a decade, Sotherby’s had managed to team up with Ferrari to herald their return to big-time classic car auctioneering.

The sale venue was Ferrari’s Logistics Building at the Fiorano circuit in Maranello – hallowed ground for fans of the Italian uberbrand. Then there were the cars. The mainstream media trumpeted the 2004 ex-Michael Schumacher F1 Ferrari; cognoscenti drooled over a fabulous 1958 Ferrari 412 S Spider Scaglietti. In total, Sotherby’s had 29 top-notch Ferraris on offer, many pitched to deliver well over $1 million a shot.

On the day such wishful thinking was smothered by a generally uninvolved market. Few high-priced lots hit their reserve. In retrospect, it’s clear some expectations were less than informed. For example, the 412 S Spider Scaglietti is indisputably a very special motor car, but it was never going to reach the $8.5 million touted in some decidedly over-excited media.

In the event, a few records were broken – Schumacher’s F1 Ferrari went for an unprecedented $2.8 million – but in the main there was just no interest in such high prices. Only 10 out of 29 cars were actually sold. Maxim three: expect the unexpected.

While Sotherby’s Italian sojourn was undoubtedly painful for many involved, for would be investors it offers a couple of valuable pointers.

First, this isn’t a market easily swayed by window dressing. At the top end, all the big collectors know one another and probably know each other’s collections almost as well as their own. In fact it’s significant that a number of the Maranello offerings had been available for at least a year prior to the auction without any takers.

Second, it is worth considering what did sell in Maranello. In a strange way, a 1956 250 GT Boano Coupe turned out to be one of the stars of the show. Its low-key, almost frumpy design - this is a Ferrari! – has its advocates, but few who have been prepared to pay much more than $150,000 to become owners. This is starting to create a consensus that this particular duckling is a tad undervalued.

But could it really explain why the Maranello Boano sold for $410,000? Not really. However, Ferrari aficionados also point up the fact that the Farina brainchild was one of only a handful built with an aluminium body – in other words, an unusual strain of a relatively rare breed. Maxim three: think history, think provenance and keep an eye out for technical innovation.

It seems that while some “low end” investors in relatively available models – for example, Lussos and GTCs that until recently could be had for around the $100K to $150K mark – have seen values double over the past couple of years, the top end the market has remained pretty static. And this is, perhaps, as it should be. At the bottom end the market is finally in the process of recovering from the 1990s slump, while for mega-rich collectors ownership has always been more a priority than speculative enterprise.

In 2002 a Ferrari Berlinetta Lusso was worth around $150K.

This isn’t to suggest anyone is sanguine about losing money, but rather that as long as the very limited number of top-end acquisitions hold their own little sleep will be lost.

US market
Meanwhile, in the US wealthy baby boomers are driving a bull market in nostalgia, pursuing the cream of the American automotive dream in much the way their cash-strapped peers lust after old vinyl. Mustangs, Camaros, Barracudas, Dodges and Plymouths are all becoming increasingly collectible, prices pushed higher through imaginative lifestyle event marketing pioneered by Scottsdale auctioneers Barrett-Jackson.

Dominating the US collectors’ market for 34 years from their Arizona HQ, Barrett-Jackson’s recent Palm Beach events have ramped up the action in this market. Now in its third year, the 2005 Palm Beach spectacular was a four-day event that included a celebrity-studded charity auction, fashion shows, hundreds of vendors and a luxury lifestyle pavilion.

One of the cars headlining the Palm Beach auction was the first ever 1968 Shelby GT 500E convertible, which sold for $550,800 including buyer’s premium. Minutes later a 1953 Buick Roadmaster, last driven by Howard Hughes, sold for $1,620,000 including buyer’s premium.

This is clearly a market on the rise. At Barrett-Jackson’s 2004 Palm Beach event a total of 302 cars were sold for $11.8 million. The 2005 event recorded over $22 million in sales for over 400 cars – 25 per cent more cars and almost double the revenue.

Pride of ownership
However, while there’s undoubtedly money to be made in this market, it’s only a very few investors that have the depth of knowledge to successfully identify the undervalued or next-big-thing. The safest and most satisfying long-term course for the rest of us is simply to indulge our passions. A positive financial return must take back seat to pride of ownership.

As long as investors buy well, then post-war classics like Ferraris and Aston Martins can deliver comfortable if unspectacular annual increases of between 2 per cent and 10 per cent. However, remember that when this market collapses - as it did in the 1990s - it falls heroically and can take a very, very long time to recover.

It’s worth noting that although the all-time auction record for a collectible car is $10 million for a 1962 Ferrari 250 GTO, that staggering sum was accomplished 15 years ago in Monaco.

The market value for a 250 GTO in late 2004 was estimated to be in the region of $6 million.

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