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Are classic cars a good investment?

May 20 2018 17:41

Cape Town - The market for classic cars has slowed down significantly over the past two years, according to Leon Strümpher, portfolio manager at Sanlam Private Wealth.

There have nonetheless been some record-breaking auction sales in this luxury goods asset class of late, with experts predicting strong prices worldwide this year for head-turning heritage vehicles.

During 2016 and 2017, there was a distinct decline in growth in the classic car market, says Strümpher. Still, with a return of 334%, the asset class has remained firmly at the top of the Knight Frank Luxury Investment Index over the past 10 years.

Even though they didn’t perform as strongly overall as art or wine in 2017, classic cars produced some record-breaking auction results, with Bonhams dispatching a 1995 McLaren F1 for $15.6m (about R197m). A 1959 Ferrari 250GT California Spider LWB notched up $18m through RM Sotheby’s.

The year’s top seller was a 1956 Aston Martin DBR1, raced by legendary driver Stirling Moss. It was auctioned by RM Sotheby’s for $22.5m.

The index of the overall performance of exceptional historic motorcars worldwide, as reported by the Historic Automobile Group International (HAGI) and represented in dollar returns, closed 2017 with a gain of +1.66% – the slowest annual index growth since 1999.

According to Strümpher, some market segments have seen price declines during the year, most notably Porsche, which was down -0.18%. The HAGI Ferrari Index gained +2.45%. The Mercedes-Benz Classic Index was the major exception, with a performance of +8.72% during 2017.

Porsche 718 Spyder:

(iStock)

"However, while transaction volumes and price advances declined last year, there have been no signs of a deflating price bubble," says Strümpher.

Although some have suggested the classic car market may fall significantly, Dietrich Hatlapa of HAGI isn’t expecting anything quite so dramatic in 2018.

He explains that it is hard to make predictions, but he is fairly confident that strong prices will be paid for the best cars by knowledgeable collectors this year.

McLaren P1:

(iStock)

The results from the year’s first major classic car auctions in Scottsdale, Arizona, seem to bear this out. A 1958 Porsche 550A Spyder that finished fifth overall at Le Mans as a works entry, sold for $5.1m as the top result at the Bonhams Scottsdale 2018 sale.

The top Ferrari result at the same auction was $2.6m for a 1972 Ferrari 365 GTS/4 Daytona Spider.

Not for the faint-hearted

"It’s clear that investing in classic cars can still be an exciting and extremely rewarding venture, but it’s definitely not for the faint-hearted. It’s an asset class that can be analysed like any other and it’s in the finest details where the rarity lies, and the real value emerges," says Strümpher.

1959 Ferrari 250GT Cabriolet:

(iStock)

He believes that when approaching the classic car market as an investor, you need to do so as you would any listed asset on the JSE. Start with price, do your research, get a good database as a reference, and take your time.

And know that sometimes it does involve luck. Most of the cars that’ll be great investments in years to come will be so in part due to unforeseen changes, for example the introduction of electric cars and emissions taxes.

Joy of ownership

According to a survey by Knight Frank, the number one reason why people buy scarce luxury goods is simply the joy of ownership. The second is capital appreciation, the third the provision of a safe haven for capital investment, followed by investment portfolio diversification and, lastly, status among peers.

"I think it’s safe to say that scarcity remains one of the most important aspects of appreciating prices in classic cars. Scarcity, combined with good looks and original engine and components, original paint and upholstery, and low mileage, are a winning combination," says Strümpher.

In his view, Japanese vehicles are perhaps more attainable in South Africa than European or American classics. Through the 1960s and 1970s the Japanese launched several sports cars, such as the Nissan Skyline.

"One model of which I haven’t seen many, but that’s been quietly gaining global appeal and price appreciation, is the Datsun 240Z," says Strümpher.

Datsun 240Z R:

(iStock)

The Toyota 2000 GT with its distinctly shark-like design is to him in the same league as the E-Type Jaguar. Japan also produced the Toyota Corona Mark 2 Coupe.

1967 Toyota 2000 GT:

(iStock)

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sanlam  |  money  |  classic cars  |  investments
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