Can Investing in Classic Cars Be Worth It?
The Book: Better than Gold – Investing in Historic Cars
Author: Deitrich Hatlapa
Purchase: Click here
“This is gold, Mr. Bond. All my life I’ve been in love with its color…its brilliance, its divine heaviness”.
– Auric Goldfinger, Goldfinger
In the 1964 James Bond movie Goldfinger, the titular villain knew a good investment when he saw one: gold. Precious metals have been a tested store of wealth for thousands of years. In times of instability, and when stock and currency markets are in flux, they have been viewed by many as a safe haven.
And they will always have inherent value because they are finite and tangible resources, uncontrolled by any one government or financial institution. These are some of the reasons that give precious metals like gold numerous benefits for investors.
But there happens to be another precious resource that happens to have similar traits: classic cars. No one entity controls them, and they sure aren’t making anymore of them. Now in its second edition, Dietrich Hatlapa’s book, Better than Gold: Investing in Historic Cars, seeks to explore, track and analyze the annual multi-billion dollar market for classic cars.
Hatlapa, whose background has included a career in investment banking, starts off his book with a question – do classic car prices behave like stocks, and are they investments? The author offers up historical price performance information on these valuable assets, and commentary on why their prices behave they way they do to back come to some answers.
The seed was sown several years ago when the author and a few friends began to assemble collections of cars themselves. They observed that prices would inch seemingly forever upwards. But what caused the market to behave this way? Hatlapa found that no one had ever conducted an in-depth study of the classic car market, despite it being in existence for almost half a century, and anecdotes that even seasoned investors like Warren Buffet have gotten it wrong when it came to automotive investments.
Hatlapa attempts to make sense of things by employing financial statistical modeling to chart the value of a basket of collectors’ cars—the HAGI Top Index—as well as separate indices of Ferrari and Porsche models. Data is collected from auction results and input from “inside” the market.
But he had to start virtually from scratch when he began. “We did an analysis and report on the value developments in the market and realized that this sector was under-researched,” Hatlapa said, while acknowledging that classic cars are different from other financial markets, and more traditional asset classes, because they are a “passion”.
Hatlapa would enlist experts, and former colleagues from ING Baring Securities, and together they began researching the classic car market. The conclusions they found are striking.
In 2011, HAGI announced that sections of the classic car market had risen by 20% from 2008, compared with only a 10% run-up in the price of gold. Those who would have invested their money in those classic cars would have done better over the years than those who invested in fine art, jewelry, antiques, wine, and even gold.
The HAGI index now estimates that the top of the classic car market—using historical data going back to 1980, and an index that now covers 50 cars, each having no more than 1,000 examples built, be worth at least $155,000 individually and have an established collector community, amongst other criteria—is now worth $37 billion with annual turnover of $3 billion, up from between $15.5 and $19 billion in 2008.
Those are rarefied marques and models from the likes of Ferrari, Bugatti, Aston Martin, Alfa Romeo, Porsche, and Mercedes-Benz amongst others, but Hatlapa says it also informs movements further down the classic car market. Rising tides raise (almost) all ships.
If it sounds like classic cars are real alternatives to investing in mature asset classes, Hatlapa cautions against it, saying it’s a misconception. Even in a bull market, trying to predict market behavior is a dangerous game. While you might make a significant return on your purchase, you equally might take a loss if conditions conspire against you as there have been classic car investment “bubbles”.
Are we due for another one as we had in the late ’80s? Hatlapa is monitoring the market, but he says it may be best if you view your classic car(s) acquisitions as “non-financial ‘returns’, i.e. the fun factor. In that case you are not affected during periods of market decline.”
The book doesn’t specify how one convinces one’s spouse that cars can be investments, but it does present market theories, analysis, data, with pictures and graphs to illustrate the facts of what has happened to this point, and is updated regularly. It is a weighty, scholarly, and expensive tome, but considering the time, effort, and research that went into writing it, worth the price if you’re interested in collecting.
For further information on the HAGI Classic Car Indices, please see www.historicautogroup.com