I take great delight in replying “NO” to the regular SMS spam I receive offering to “decrease the monthly insurance costs on your depreciating asset”. Not only is this somewhat misleading — you should be insured for replacement value — but the value of my 1972 Jensen Interceptor Series 3 has increased 400% in the last four years. What other investment would offer such an incredible return? It is rare for even the Cape Town property market to boast such figures. My case is not unique.
A Financial Times article earlier in 2016 quoted the Knight Frank Luxury Investment Index (KFLII), which shows how investors in luxury cars have seen returns over five and 10 years to March 31 2016 rise to 161% and 467% respectively. This in comparison to data provider Preqin who revealed that “the average hedge fund over the same periods had returns of only 4.75% and 7.83%”.
Comparing other asset classes, the KFLII showed that in second place was fine wine with growth up 9%, followed by rare coins in third position, up 6%. Art and furniture were the biggest losers, dropping by 5% and 6%, respectively, it says.
“Ferraris and Porsches have comfortably outperformed many leading global hedge fund managers over the past decade, with returns from the world’s top marques driving classic cars to triple-digit returns,” the report says. Models from the 80s and even newer are seeing the fastest growth. This is not surprising considering that guys who are now in their 40s are feeling nostalgic for the dream cars they had Prestiked to their bedroom walls when they were 10 years old.
Brian Webb of Crossley & Webb in Cape Town concurs. “Over the last two years I’ve seen dramatic increases in prices particularly with Ferrari — Testarossa and 308s are very strong and have literally doubled in price. This is driven by increasing awareness and limited supply. Even the recent spikes in Cape Town property prices pale in comparison.
“We’ve just sold a 1973 Porsche RS for R10m and a 964 3.6 Turbo for R2.5m. The 964 is the Holy Grail. Targa’s are also increasing in value and I’m even seeing a resurgence of the 993 and 996 models.”
Jason Groenevelt of JB Classic Cars also reports that “the classic car market is booming, driven by a few factors: a bit of hype, nostalgia, TV shows, and true investment value based on scarcity in the local market.”
Events like the Goodwood Revival and Bonhams auction house have also driven interest as have the plethora of TV shows such as Wayne Carini’s Chasing Classic Cars, which was first to spot the growing interest back in 2008. The internet has also given shoppers greater connectivity and access to information, driving prices high and limiting the chances of finding true bargains.
The Historic Automobile Group International (HAGI), an independent investment research company and think tank with specialised expertise in the rare classic car sector, publishes annual indices that are among the most respected tools to monitor the price development for any vehicle. Their latest index shows annual price change (June 2015 to May 2016) for Porsche of 16%, Ferrari 11%, and Mercedes-Benz 3%.
HAGI may be one of the go-to guides, but human behaviour can be a little unpredictable. Invite a few men to an auction and not even the auctioneers can predict the outcome. As Webb reminds me: “UK Radio 2 DJ Chris Evans famously paid £12m for a 1963 Ferrari 250 GTO in 2010 and everyone thought he was insane.” Clearly he was onto something though as two years later Sir Stirling Moss’s apple-green 1962 Ferrari 250 GTO sold for more than twice that amount.
However, if the latest Hagerty Price Guide is anything to go by, “at the upper reaches of the market, activity has certainly slowed”. (Hagerty is the leading global insurance agency for collectable cars. They also track and report on trends and publish lists of cars they believe will be collectible in the future.) The crowd-pleasers like Ferrari, Mercedes and Bentley make news headlines but are mostly out of reach for the average Joe. Latest figures show that Ferrari Daytona Spider values have fallen 15% from a year ago, and Mercedes-Benz 300SL roadsters are the “cheapest” they’ve been, down 11%.
Whether driven down by Brexit or US presidential elections, “most importantly, the urgency for people to grab the car they want before it becomes $300000 more expensive next month is gone. At this level, reduced urgency leads to increased patience,” the guide says. Rob Sass, publisher of the company's Classic Cars magazine is quoted as saying: “we’re in for a bumpy ride”. On their website, he reports that the very top of the market has been quiet of late. “The Hagerty Blue Chip Index has leveled off after years of torrid growth. Some attributed it to demand at the top meeting current supply. Others sensed an attitude of extreme caution.”
For most people though, buying a classic car is about finding unusual wheels that say something about them and their lifestyles. It’s also about fun times with friends and weekend drives on our wonderfully scenic roads. For more “open-minded drivers”, the Hagerty guide shows that the choices are endless and what’s at the heart of a very strong market. Significant movers among these are some 80s models like the Merc 190E 2.6L (growth of 55%), 1969-74 Alfa Romeo GTV, and early Datsun 280ZX Turbo (13%).
“If you own one or two cars, which you purchased for fun, any market correction should be irrelevant to you. And if the collector car market does deflate for a time, then treat this as a buying opportunity. Frankly, many frustrated, priced-out-of-the-market collectors have been hoping for just such an event,” Sass says.
“Draw up a shopping list of cars that will have a quick rebound from a correction. Maybe some of the cars that have only recently just climbed out of reach — the cars that went from $25000 to $40000 to $50000 in the last few years — will soon be accessible again, such as Alfa Romeo 1750 and 2000 GTVs, Series II Jaguar E-type coupes, Porsche 911 SCs and Carreras and even Ferrari 308s.”
Apart from these highly collectable top marques that have been fetching off-the-charts prices, for newcomers the market is quite accommodating and there is something to suit everyone’s pocket. Groenevelt’s advice is to spend in your price bracket but aim for the best possible quality. Like any investment, if you are going to drop the cash, you need to consult the experts and do your homework to avoid any nasty surprises. However, he says: “You should buy because you’re passionate and not just based on pure economics or returns.” He also reminds me that no matter how informed you might think you are “they’re going to give you shit”.
Despite a growing interest in restoration and the Restomod trend (keeping the outward appearance while replacing all outdated parts with modern technology), Klaus Grogor of Backdraft Exotic Car Boutique’s advise is “first of all one has to look at the production numbers [scarcity], the provenance, but mostly the condition of the vehicle. Some people also prefer to purchase a car at a lower cost and carry out a restoration. I would recommend purchasing in the best condition available. Although more expensive to start with, this is probably a better buy in the long run.
Long-term, the drivers of growth in the segment are sustained by an increase in HNWI numbers and younger buyers who also continue to enter the market.
“Considering that the world population is growing on a daily basis, there are many more buyers now than there used to be,” Grogor adds. So as Generation-X drives the new wave of buying and nostalgically eye more modern classics from the 80s and 90s, maybe the larger production numbers don’t matter as much? Who knows, with some even younger buyers looking to stand out from the crowd but still wanting reliability, we are bound to see growing interest in early performance model sedans like the BMW M3 (E36) and ‘hot hatches’ like the Ford Focus RS or ST, first generation VW Golf GTi or CTi, and Japanese coupes.
Scarcity is not the only driver. Take Porsche for example. “There is a lot of hype in the market about collectability,” says Groenevelt, despite his bias towards Porsche. “I suspect largely driven by reputation, accessibility and a bit of status. People are paying hugely inflated prices for mid-to-late 80s model 911 Carreras, which had production figures of around 75000. Porsche is in a bit of a bubble similar to that of 2004 just before the economic crisis, when we saw 10%-15% growth. This dropped off in 2008. It is also similar to the muscle car bubble of 2005 and 2006. There is hype in terms of collectability and people are over paying and overlooking other investment possibilities. If you compare a 911 with say a Ferrari 308, which only made 10000, it doesn’t make sense. People are using money rather than their intelligence.” The Porsche 911 range, however, does offers a variety of entry points and is a reliable daily drive.
“There are three kinds of buyers: collectors who have plenty of money and space to store their collections, and who look for rare cars; first-time buyers looking for something different but practical; and repeat buyers. If you only have space for one car then a 911 or Merc R107 makes sense as they have all the mod-cons like a/c and power steering and can be enjoyed as a daily drive. Demand for cars also depends on age. Ten years ago it was the muscle cars of 30s and 40s and now it is 911s and the ‘Magnum PI’ Ferrari 308,” he says.
At the top of the pyramid there is plenty of disposable wealth but how are most buyers funding their habits? “Banks haven’t woken up yet and are still happier to finance a depreciating ‘assets’ rather than cars that at the very least hold their value over time,” says Groenevelt. “A lot of our buyers in their 40s and early 50s are taking a serious look at their financial portfolios, their RAs, and the long-term view is generally that they are better off making a withdrawal and investing in classic cars.” Due to their age and increase in local property values, others buyers are accessing funds from their bonds at lower interest rates.
The great benefit of investing in the right classic is not only its potential hedge value but it is a tangible asset that will bring you tons of joy, which the stock market seldom offers.
“Restoration projects are popular but owning a classic is now also about making a fashion statement and Porsche is very popular for this,” says Webb. “They are affordable and keep pace with inflation. Parts and servicing are available and of course it’s a recognisable status symbol.”
According to Groenevelt (and the Hagerty graphs I consulted), the R107 body Mercedes Benz models like the ‘Bobby Ewing’ 450SL from the 70s and 80s have already “quadrupled” in price in the last five years. “No one really considered these to be collectible classics. Once its predecessor the W113 ‘Pagoda Top’ had been snapped up — now fetching R1-million plus — people started taking note of the R107.” It also has more appeal to a generation that grew up with Dallas.
For those entering the market, Groenevelt has some predictions: “Keep an eye on the Porsche 928, particularly the S4, as this model will come into its own very soon. With R100000 you might still find an early 4.5-litre Porsche 928 [manufactured 1977–1995], an MGB Roadster or GT [1962-1980], which still has legs in the market, or a Mercedes Benz 450SLC [C107, 1972-1981]. Maybe even a BMW 635CSi [E24, 1976-1989] but they are becoming difficult to find. For R250000 I’d buy a mid-80s Merc 280SL [R107 body type, 1972-1989] or Alfa 2000 GTV. For around R500000 I’d get the very best example of a Merc 450SL or 500SL [R107], Alfa Spider ‘Duetto’ [1966-1969, 1st generation] for about R450000 or a Jaguar XJS Convertible (1988–1996) for about R400000.”
Webb also predicts that cars like the MGB GT are on the up and has seen an increase in value in the UK from £5000 to £10000 in the last two years. “This is still affordable but an indication of where things are going. We sold a 1962 MINI Cooper for R200000. It wasn’t even a Cooper S. It also depends on the marque as some perform better here than in the UK and vice versa.”
The local market and pricing is driven by supply and demand but at the end of the day you don’t want to be overpaying. Compared to international pricing, particularly in the UK, Groenevelt says: “Some model pricing is over inflated in SA due to rarity and desirability locally. But others like Alfas are greatly undervalued. As a guide, it is important to note that in comparing markets, you’d need to add on at least 60% of the listed price if you were planning to import rather than buy locally.”
Webb agrees. “Local pricing is sometimes a little unrealistic. As a guide, take the UK selling price, add shipping cost, 20% for VAT and 10% margin for the dealer. This should give a good ballpark on what you should be paying.”
Our modern world makes little sense anymore but as things become more hi-tech and societies to a large extent become more homogenised, a recurring theme every generation is individuals reacting by seeking out the old, the unusual. Whether it’s driven by 40- or 50-somethings experiencing a mid-life crisis or planning better for their futures, or a hipster looking for more than a beard and a ‘fixie’, or whether it’s just pure nostalgia, the writing is on the wall. An investment in a classic is an investment with many rewards.