Accelerating investments
Buying classic cars, by Aurora Eastwood
In the past decade, the FTSE 100 has been more indecisive than a well-heeled lady in front of a stand of Jimmy Choos, the property market has swung to and fro as wildly as a member of the Bullingdon club hanging from a chandelier and the currency markets have played a game of tag. One thing has outperformed them all – outperforming, in fact, everything. not gold, not bonds, not farmland but classic cars; 487% over the past decade, according to the Historic Automobile Group International (HAGI), an independent investment research company, with the Top Index listed on the FT website.
This sector of investment, known as investments of passion, have massively outdone the more traditional mainstream asset classes and some buyers have seen spectacular gains – even this writer, seeing one strategic buy double in value in a single year. The Knight Frank Luxury Investment Index (KFLII) surveyed its ultra high net worth clients and has calculated that more than 61% of respondents report increasing interest in classic cars.
Why has the classic car market seen such huge gains? Reasons are myriad. In no particular order, the list includes: Enjoyment. A car is a tangible creation, in three dimensions, that breathes fire and roars mightily. A beautiful piece of art is a wonderful thing but all one can do is gaze upon it. It certainly can’t be grabbed by the scruff of the neck and flung around a race circuit or be driven to a beautiful stately home, parked on the lawn and be picnicked around. You can’t drive a painting to the South of France and take in a curated fiveday tour, surrounded by a close group of likeminded individuals. People who buy classic cars are passionate about them.
“They are car enthusiasts, they buy them and they rocket up in value,” says Adrian Hamilton, owner of Duncan Hamilton Ltd,
Classic cars are proving to be a long-lasting success for investors looking to enjoy the fruits of their labours, writes Aurora Eastwood
one of the most important dealers in the entire classic car world.
Scarcity. In the case of classics, there were x number of y car made. The more prestigious y is and the lower x, the rarer and more valuable they will be. And they don’t have to be from the 1960s, either. Look at the Ferrari 288 GTO. Built for the Group B rally series that was axed because it was too fast (ergo dangerous) in the mid 1980s, only 272 cars were made. Costing around £73,000 at the time, these cars are now easily fetching £1.5 million and will continue to go north. The Ferrari 250 GTO Berlinetta is another example. “Purchased in the 1960s for 25,000 lire – then around £1,400, equivalent to around £22,000 today – it sold in 2014 for $38.115 million, setting the world record for the most valuable car sold at auction,” said James Knight, Bonhams International Group motoring director.
Lack of alternative options. With interest rates so low, and other asset classes so volatile, where else to park one’s money? Historically, classic cars have performed so well there seems little reason for a sudden downturn. In the worst case scenario, if all the markets crash and values are wiped off everything, at least you can drive your 288 GTO down to the corner shop and buy some bread. You can’t do that in your equity portfolio.
This isn’t to say that things won’t slow in the short term, as the market has eased over the past year. HAGI shows a slight cooling, with 16% growth in 2014 compared to a huge but unsustainable 47% in 2013. This really represents a more balanced market, according to HAGI’S founder, Dietrich Hatlapa.
Who is buying these cars? Adrian Hamilton made an interesting point.
“Europeans and Americans have history with, and obsession for, the automobile. They are collecting cars they remember from when they had short trousers and posters on bedroom walls. Most are between 40 and 55, buying cars from the ’70s and ’80s.” He went on to say, “Russians, Indians, Chinese – they just aren’t as into it – they don’t have the same history with the motor car.”
Knight explained why the classic car market is not as vulnerable as the FTSE or other investment areas – it’s down to the buyers. “Over the distance, owning a collectors’ motor car has always shown a return. The market is primarily underpinned by collectors and enthusiasts – not speculators and investors – which is a good thing. Speculators thrive on instability. Collectors enjoy ownership and cherish their cars. If they can get their money back, even make a return, that is great.”
What cars should investors be looking for? In part, it depends on the budget and how much they want to spend. “There are many factors that can affect cost: make, model, rarity, provenance and, of course, condition. You can spend anything from a couple of thousand to a few million on a collector’s car, it really depends what you like and how much you’re willing to spend. The good news – and something that readers find surprising because of the press reports of record prices – is that the hobby is accessible to pretty much all,” explained Knight.
There are gains to be made at almost every level but you need to know how to pick them.
Cheap: from £5k. Nicholas Margerison, a former Bonhams classic car consultant who now advises private clients, recommends the Golf GTI Mark I or II, the classic 1980s hot hatch. “Get a low mileage, unrestored example with perfect, unmolested interior trim. You will pay for that. A hoot to drive but beware – many went backwards through hedges back in their day!”
Not so cheap: £30-£60k. Max Wakefield, co-founder of Chillingham Classics, an Enterprise Investment Scheme to invest in classic cars, rates BMWS. “A 2002 turbo is now worth £60,000 plus, dependant on condition. Or a 3.0 CSL, these are now changing hands for £100k but you might find one at the £55k mark.”
Also in this zone is the first Japanese supercar, the Honda NSX, as tipped by Margerison. “It was developed in conjunction with Ayrton Senna. The engine is its forte.” From £40,000.
Mid range: £100,000 to £300,000. In this range it has to be the Aston Martin V8, built from the late ’70s to 1989. It’s just about possible to get one for £80,000 but, more realistically, £150,000 upwards. The V8 Volante “Prince of Wales” is the most sought after, with only 22 built and commanding almost £500,000. Just down from that
the Volante “X Pack”. “Find a Vantage Volante (convertible) X-pack V8 with a manual gearbox,” says Margerison. “If you can.”
Once the collector has chosen what to buy, he or she is then faced with certain choices. The first and most important is where to store the car, regardless of whether it will be driven or not. Older cars do not take kindly to being left out in the rain and must be kept indoors, ideally in a humidity- and temperaturecontrolled environment. There are dedicated storage facilities, such as Hampshire Classics, which is based on an organic farm in Hampshire. In an unprepossessing farm building, its contents only belied by a plethora of security cameras and impressively strong doors and locks, sit countless cars of all ages and values, many cocooned in special inflatable pods, all connected to the life support of a trickle charger. Costs start at £30 per week (for periods of six months plus) and rise to £35 per week plus VAT if the car needs to be “carcooned” – or more if extra services are required, such as exercising the car and so on.
The next choice is whether the car is going to be used. Sadly, many are bought and don’t turn a wheel – but for those who don’t mind putting a few more miles on the clock, the options are both endless and fun. Historic rallies, owners’ club events, track days (for the brave) or historic racing (for the ultra brave). Being invited to display one’s car at a prestigious car show such as Wilton, Cholmondley or Goodwood is an honour and a great opportunity for potential buyers and car aficionados to see these wonderful machines .