Admit it, you have often thought about it. As modern cars become more and more perfect, and in the process boring, older classic cars tend to become more appealing. Yes you are less comfortable, going less quickly and more prone to breaking down, but the nostalgia that comes along with it is priceless. However, one big problem with buying a classic older car is depreciation. But is it always the case?
Here’s an example: My old Mk2 Golf GTI. I bought it for 1,500€ in 2009. Three years and 30,000kms later, I sold it for exactly 1,500€. Now, the more experienced accountants amongst you will mention that I actually lost money, due to inflation, and the more experienced person in general will also mention the absurd repair costs that went in the car. (and to answer your question, objectively, yes I was a loser).
However, old cars do offer a slice of nostalgia. Also, with the financial crisis, people are less willing to trust the banking and stock market systems with their money, or for that matter investing in real-estate, given the impact of the sub-prime crisis. As a result, more and more investors are turning to more unusual forms of investments. For example, just 10 years ago, paying a 100,000 dollars for a bottle of whisky would have just been the wildest dream of some naïve distillery manager. However, in the past few years, special editions of single malts have approached, and in some cases surpassed that legendary 100,000 dollar mark (in some cases going for over a million). Dalmore comes to mind a lot.
The same thing is happening for cars. Last year, in August, at the Monterey Motor Week, a record of 260 MILLION dollars in total sales was reached. That’s right, a bunch of people bought over a quarter of a billion in cars. The Barrett-Jackson auction this year also recorded record numbers. It was rumoured that, combined, the line of credit of all the buyers was worth over a billion dollars. Here you have people, who would have the power to buy a country, simply buying cars. Are they taking into account depreciation? Repair costs? Insurance?
Let me put it to you this way, these people did not get their money by investing in Betamax that is for sure.
So why buy cars then? Bear with me, as I try to explain:
Usually, when investing, people look for liquid assets, that is assets that can be converted quickly into cash. Before, real-estate was a great example, there was always a need for land or housing (if in the right area), and you could easily make a big profit on it, as demand was always increasing. However, with the sub-prime crisis, this changed. What happened, to put it simply, is that more and more people would buy real-estate, with money they did not actually have. They used debt to finance these extreme purchases. After a while, they could not repay the debt, and lost the house. This happened on a massive scale and caused a bubble collapse. People realized that the only reason prices were going up, was due to an artificial mechanism, and then, they stopped investing, causing an excess of supply, and thus a fall in prices. And that is not the complete picture!
So banks were hit, investors were hit, it was bad. Currencies also were no longer a safe bet, look at the Euro… Moreover, given the financial crisis, people did not want to invest in the banking system as much, therefore they turned their interest to “safer” assets: collectible items. As a result, collector single malt prices flew through the roof, art prices grew exponentially and classic cars were no exception.
As a matter of fact, in some cases, these cars can be considered as art. They are often very rare examples, and have huge historic value. In some cases, you could actually buy a car, insure it, use it, crash it, repair it and sell it off still for a big profit. Think of Rowan Atkinson’s Mclaren F1. After his crash, if he sold the car, he would still make a profit.
Look at this graph for example. It is one of my all time favourite cars, the Jaguar XKSS. Notice how the exact moment the financial crisis begins the value shoots up? (The differing conditions represent the average condition the car is from show-room perfect to sort of beater).
What about this one? The classic Ferrari 250 GTO.
And it is not just crazy expensive cars either, look at this 1988 BMW M3 (below).
If the car has historic value, then it will be a sure investment, regardless of the actual numbers produced. Example? Someone spent 10,000€ for a burnt out Citroen 2CV, simply because it was the last one ever produced in 1998.
But, just like any other investment opportunity, the word to go by is caution. Just because a car is pre-1980s, it does not mean it will make you rich. Many factors need to be considered: Desirability, rarity, historical value, previous ownership… It does not even need to be old, for example, the E46 BMW M3 CSL, that came out in 2004 has never lost any value. You could have bought one new, drive off and sell it the next day for a profit. The first New Minis were also the case, given the long waiting list for one. Many sites are dedicated to this so I will not delve more into this. Though I will say this: at the moment one of the main opportunities for smaller investments, in Europe, is in the “Youngtimer” cars. These are small sporty cars from the 1970s-1980s that are becoming accessible to the people from the generation that grew up worshiping them. Think Mk1 Golf GTIs, Peugeot 205 GTIs or Renault 5 Gordinis. More info can be found here (in French, but it is worth it).
Finally, another word of caution. Just like any investment, the risk of a bubble collapse is big. This happened in the late 2000s with muscle cars (look at this graph for a 1967 Dodge Charger).
Why can this happen? Loss of confidence in the market, people start to get cold feet, and once again supply becomes greater than demand, pushing prices down. Causes for this would be easy, for example, a renewed confidence in the banking and stock market systems and its quick profit opportunities.
So in the end, just like any other investment, there is risk associated, however, depending on the car, buying an old car is not a crazy idea, it can even be profitable!
(all value data graphs copied from Hagerty.com)