Making your marque: Passion investing in classic cars

Classic cars are in the fast lane of luxury assets, but what are the nuts and bolts of collecting to consider? James Beech is in the driving seat

Each year East London’s vast ExCel centre is overrun by more than 40,000 discerning owners, collectors, experts, and enthusiasts who flood the events space on the banks of the River Thames for the London Classic Car Show. Hidden among the masses, passion investors from global multigenerational family businesses are hard to spot, but they are here.

“We tend to have approaches from car experts or people in family offices initially, sometimes the principal,” says sales manager Jonathan Ostroff as he surveys the hangar-sized venue from his Hexagon Classics stand.

“When it comes to price, once they have done their research, they will reveal himself or herself. A quick [online] search on many of these surnames reveals some of the wealthiest families in Europe are collecting these cars.”

More than 700 of the world’s finest classic cars, with a total estimated value of more than £300 million ($419 million), gleam under the lights of the capital’s premier vintage vehicle exhibition and trade show in 2018. Major auction sales at the show peaked with a 1984 Ferrari 512BB ‘Boxer’ for more than £260,000 ($333,300).

Serious money for what some may dismiss as boys’ toys, compared to the accumulation of luxury property, fine art, fine wine, or jewellery. But in comparison with the values of such luxury assets, classic cars have provided the healthiest returns since 2005, with average prices rising more than fourfold, according to the 2017 edition of the Coutts Passion Index.

Sure, classic cars saw a short-term drop of 10.4% in 2016, but they are still the top performing asset, up 332%, over the 12 years captured by the Coutts report. The Knight Frank Luxury Investment Indexon classic cars in the first quarter of 2018 says the slowdown from turbo-charged double-digit growth of recent years is largely because speculative investors have left the market.

The really knowledgeable and shrewd collectors remain and they are still prepared to dig deep when they find a car they really want. Classic cars are also expected to increase as a desirable asset class in China and the Middle East.

And let’s not forget, the appeal of vintage vehicles is not just financial, it’s emotional. What other passion investment gets hearts pounding and heads turning quite like being behind the wheel of your own Aston Martin, Lamborghini or Porsche?

Under the bonnet: where to begin

There’s a lot to think about when it comes to investing in that first magnificent motor. Insurance, transportation, event showcasing, storage, maintenance, and estate planning should be front of mind, says James Haithwaite, client services director and classic car expert at First Names Group.

“Buy the best you can afford, but equally do ensure the necessary due diligence is completed and the car’s mechanical condition is checked before a purchase is made,” Haithwaite says.

“More importantly, buy the car that you really love and do not just buy one you think will appreciate, as there is no guarantee. Similarly, buy a car that will suit your needs. If you want to use it to take your children to school, for example, then don’t buy a ‘fire breathing’ two-seater!”

Keep in mind that classic cars with the most residual value in the market have had as few owners as possible from new and come from low-production numbers. Rarity is a key driver in demand and asking price. Celebrity owners and provenance, from the factory onwards, to prove the authenticity of the vehicle also increase and sustain a car’s worth.

Gavin Thorn, restoration manager at Hilton and Moss, agrees new investors must be sure their heart’s desire is the genuine article. Rare models with parts missing have been known to be augmented by unscrupulous owners or dealers with parts from more common sister models.

“Try and make sure the car has had as little restoration work as possible in its life,” Thorn says.

“We would much rather start with a barn find—a dusty, non-running rusty car—that has not had patches cut out and welded in and been played around with, because it is a virgin canvas to start from. With that, you can guarantee the end result will be spectacular.”

Thorn says there are nameplates to buy and restore to the highest standard and still offer the buyer a return for far less than what its retail value would be, “and those are the kinds of cars our clients are looking to find.”

However, it’s hard to find classic cars in an unrestored state for restoration as demand to do just that has increased among buyers. That demand could mean a higher cost and a narrower return on investment, if the net gain is purely financial.

The good oil: which car?

The Coutts Passion Indexis helpful in determining which makes and models hold value as it tracks no less than 10 classic cars.

All the models in the index have increased in price since 2005, when Coutts started collating the data, but the most successful have been the Ferrari 250 GT SWB California, Ferrari 250 GT SWB Berlinetta, and Ferrari 275 GTB/4.

“Ferrari is the power brand for classic investment and my maxim is always, ‘If you can afford a Ferrari, always buy a Ferrari’,” says David Hayhow, sales executive at Joe Macari of London.

“Across the other marques, each tends to have at least one, sometimes two or three, classic road models that are ultra-rare and worthy of a blue chip collection, but the best and most valuable collections are always dominated by Ferraris.”

Interest in Mercedes-Benz accelerated in 2017 while some of the rarer Alfa Romeos, limited edition Porsches and specialist Aston Martins, such as the Vantage and those with manual gearboxes, are in demand.

Thorn says investors were interested in acquiring classic Aston Martins, in particular the slightly undervalued DB6 model compared to the earlier DB5 and DB4. While the Italian market ebbs and flows over time, Mercedes Benz models from the 1950s are in demand.

Porsche 911 classic cars increased almost eight-fold—683%—in value in the past 13 years, according to Suedwestbank’s OTX Classic Car Indexof premium vehicles made in the bank’s heartland of luxury car manufacturers in southern Germany.

However, Haithwaite warns the headline increase in value for a particular marque can be misleading. For example, Porsche has, overall, increased in value substantially over the years, but not all models have increased at the same pace, he says.

“In 1994, a 1973 911 2.7 RS was around half the price of the new 911 model of the period, the 993. The 993 initially depreciated, as most new cars do, but in more recent years it has performed strongly due to being the last of the air-cooled 911s.”

Sports and racing cars from the 1950s and 1960s, Aston Martin, Ferrari, Porsches, Maserati and Mercedes-Benz, were the “blue chip selection” until 2015, says Florian Seidl, founder and president of the independent collection manager Carficiando in Germany.

“All of a sudden the newer generation is starting to come in and we find late 1980s and early 1990s sports and racing cars are going very strong,” Seidl says.

“We used to call it the ‘new money app inventors segment’. These guys in their 30s are going for their poster cars. No one would have predicted this trend to be that strong, especially in the Porsche market.”

Car park life: how to manage your collection

Once your four-wheeled wonder is purchased, management of the passion investment becomes imperative to maintain its integrity and preserve its value, ideally in consultation with experts such as a marque specialist.

Storage, whether in purpose-built facilities or a warehouse, and storage coordination, if the car travels between shows and museums, are also key to maintaining the vehicle, Haithwaite says.

Moreover, storage conditions often form part of an insurer’s requirements.

“Another major factor is maintaining the car’s profile,” he says.

“This includes documentation of its racing history, appearances at concours events and inclusion in museum displays—all of which raise profile and may even increase its value.”

He says ownership is a key consideration in terms of protecting the asset. A car, or car collection, may be owned directly by an individual, but often they are held using a structure such as a trust, company, or foundation.

“Structuring the collection is also particularly beneficial from an estate planning perspective, as it allows collectors to assess their overall wealth position by seeing the value of their cars alongside other assets such as quoted investment portfolios, real estate and bank account balances.”

Seidl says keeping 10 or so cars under covers in a garage and waiting for them to appreciate in value is “not how it works”.

“It has to be a living, managed collection and, as with art or wine, tastes change.

“In 2012, you could have bought a Ferrari Testarossa Monospecchio from, say, 1985 for £55,000 ($70,500). By the end of 2015, you had to pay £120,000 ($154,000) for it and now they are back to £90,000 ($115,400). With every model there is this cycle.”

End of the road: driving into the sunset

Coutts advises its clients to think about the future of their collection well before inheritance becomes a reality.

Mohammad Kamal Syed, managing director of Coutts, says what happens next is a very personal decision and often requires the input of close family members.

“It’s important to ask yourself questions such as whether you would like the collection to stay complete or be divided up,” Syed says.

“Should it be gifted to a museum or be allowed to be sold to another private investor? Every owner is different and often the answer is a combination of these choices.”

Family members may not realise the value of the collection amassed by their dearly departed collector. Specialists are available to identify worth and history then liaise with the best broker or auction house, should the family wish to liquidate the assets, Haithwaite says.

“Before any decision is made to liquidate, families need to consider that if they sell a car it is likely to be gone forever and can’t be enjoyed by future generations, which may be an issue if the car has sentimental significance,” he says.

However, the major driving force with classic cars for many passion investors is the pure fun of it all in the here and now. Ask anyone at the next London Classic Car Show.

“Buy what makes you happy, and buy something you can see yourself using,” Hayhow says.

“We are only here once and cars, art, jewellery etc should always primarily be bought because they put a smile on your face.”

Collecting vintage vehicles is a three-dimensional investment, Ostroff says, back at his stand.

“You can touch, play with and enjoy, and we hope people will drive them. It’s unlike having shares or savings in the bank that you cannot see and, in fact, these cars outperform those things in terms of returns. That has slowed down somewhat, but a lot of the rarest and most difficult to find cars are still wanted.”

Driving a hard bargain

More than £32 million ($42 million) was achieved and several records were broken when Bonhams held its annual Festival of Speed auction at Goodwood in 2018.

The most valuable lot of the sale was the exquisite '2 VEV,' the ex-Essex Racing Stable, 1961 Aston Martin 'MP209' DB4GT Zagato which went under the hammer for £10.1 million ($13.2 million), making it the most valuable British car ever sold at European auction. It sold in the room to a European buyer.

The Aston Martin DB5 has the priceless cachet of being the sports saloon James Bond 007 drives. The former-Eon Productions car driven by Pierce Brosnan as Bond in GoldenEye(1995) beat its $1.6 million to $1.9 million estimate and at Goodwood sold for $2.6 million. The buyer was SPYSCAPE, a New York-based espionage museum and experience.