FRI 20TH JUL 2018

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Classic Cars – THE Best Collectible Asset?

27th March 2018 David Carroll, Head of Strategy, 7IM

Taking a look at the classic car sector as a collectible asset type and why they have become such desirable items for collectors.

People remember THE moment they become petrolheads. Mine was at the 1976 Motor Show looking at the futuristic Aston Martin Lagonda and the muscular Ferrari 365 BB. These ‘cutting edge’ cars are now seen as true ‘classics’ of design and engineering and, in some cases, they have become iconic.

The Ferrari has certainly been a great asset for anyone lucky enough to have paid the £14,000 to buy one in 1976. They now change hands for upwards of £300,000.

As with other ‘collectibles’ such as art, rare books, fine wine, jewellery, and stamps, classic cars have become valuable investments, propelled upwards in value due to their rarity and the ultra-low interest rates of the last 10 years.

Those depressed interest rates helped fuel demand and pushed up prices because they helped more people buy cars through lower cost loans. Meanwhile the yield on the ‘usual’ investments has been driven down again by low rates, also prompting more people to turn to cars as an alternative source of returns.

A number of recent surveys of ‘collectibles’ and ‘luxury investments’, show classic cars have been the best performer over the medium to long term. Knight Frank’s Luxury Investment Index for 2017, for example, found that cars provided returns of 362%, way ahead of the returns from art (103%), fine wine (231%), and jewellery (142%). That percentage is also higher than the seemingly mundane US & UK stockmarkets. Whilst all of these statistics can be interpreted in many different ways and past performance is often not an indication of the future prices, classic cars have long been coveted and remain a source of immense passion and interest for many devoted petrolheads.

As with many collectibles, there is a range of values and, in the case of classic cars, many definitions of what age makes a car ‘classic’. Date ranges span Pre-War to Post-War (1945–1959) to ‘The Sixties’ (which actually stretches into the early 1970s) to ‘modern classics’, which seems to mean anything produced since the late 1970s! 

As a more formal classification, cars over 20 years old are regarded as classics by the insurance industry whilst the government exempts any car made more than 40 years ago from paying road tax and HMRC treats cars as a ‘wasting asset’ so there is no capital gains tax to pay on any profits from them.

‘Classics’ can cost anything from a few thousand pounds to many millions. The most expensive classic car sold at auction was £34.5m, which was paid for a 1962 Ferrari 250 GTO in 2014. Whilst 1960s Aston Martins, Ferraris, Jaguars, Lamborghinis and Porsche 911s (of any age) tend to dominate the top sales at any classic car auction, many seemingly ‘ordinary’ mass produced cars are now highly sought after. A Ford Capri from the 1980s or a BMW M3 from the early 1990s can now fetch tens of thousands of Pounds. Their increasing scarcity and the increasing wealth of the now grown men who dreamt of them as boys are driving prices of all classics higher.

The recent trend of turbo chargers replacing naturally aspirated engines in order to reduce CO2 emissions, is also providing a boost to older cars values. Drivers seek the sound, engagement and personality that many feel the new turbo charged cars lack.

As with many collectibles, you should view them primarily as a collector rather than an investor, and admire them for the ‘art’ that they represent. This is because it is very likely their price will fluctuate over the shorter term and, as with any investment, the length of time you own it is likely to be a big factor behind the size of return you make.

There are a few other things to bear in mind when you buy a classic:

  1. Provenance.
    The more history a car has the better, but that history could mean there are gaps in service history or a lack of details about restoration work that should prompt you to treat the car with caution. Whilst originality is highly prized, top-quality restorations (to factory standard) are now also sought after. In addition, a previous ‘celebrity’ owner will often add value.

  2. Study the market.
    Whilst the supply of many cars is limited, it’s essential to follow prices at dealers and auction houses over a period of time before investing. Many specialist car magazines, such as Octane and Classic & Sports Car, carry ‘market reports’, as well as listings of specialist dealers in their classifieds which form good guidance.

  3. Speak to specialists. There are dealers who specialise and experts in a particular marque who are nearly always very keen to talk to potential customers. They can be a very valuable source of tips about what to look for and avoid, and nearly all will help you source a suitable car or inspect a potential buy for you.

  4. Set a budget.
    This should include upfront costs, as well as the ongoing costs of running a classic. Whilst servicing costs for many classics are not expensive, the work must be done regularly (at least annually) and with any car over 20 years old there are always going to be one or two ‘bits’ which need attending to from time to time. Maintaining a record of any work you have done can be important when you come to sell it. If you can’t store your classic securely (from weather, as well as theft) at home, there are professional storage facilities available for an ongoing fee.

There are obvious risks surrounding classic cars as ‘investments’. The limited number of cars can mean that the true value of a car is hard to establish, and there are a limited number of buyers so achieving a sale can take some time. The market can take a dent as happened in the late 1990s when prices fell sharply in response to global economic events and took years to recover. Investing in assets beyond cars absolutely makes sense – including those more ordinary financial markets.

However, come a crisp clear spring morning or a bright summer’s day, there is no better sight or sound than a beautiful classic car to add some pleasure to your and other peoples’ days.

Still not convinced? Google ‘Pagoda 280sl’ images and see if it doesn’t make you smile!

Vist the 7IM website here to find out more

Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.

 

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