A theme was developing – and so, too, was an explanation for why the phrase “alternative investment” is, in certain cases, synonymous with “passion asset.”
When times are good, investors expect strong returns. When times are not so good, they expect to beat the market. When times are not good and there’s no sign of improvement for, say, a few years, they start to take more extreme measures. In other words, people with money start looking for alternative investments. In the wake of the global economic downturn of 2008-09, the search has, if anything, become more intensive.
It’s no surprise, then, that classic cars are being ranked in comparison to more traditional investment vehicles, such as the stock market, and more established alternative investments, such as fine art. Sale prices for classic cars at auction have been stealing headlines for more than a decade now and, despite a minor speed bump during the recession, the pedal is to the metal once again.
The Luxury Investment Index from British real estate consultancy Knight Frank measures the theoretical return on a number of collectibles, such as antique furniture, fine wine, stamps, gold and, now, prestige cars. Their report from the second quarter of 2013 gives the clear edge to classic cars, with a 10-year rate of return of 430 per cent – a staggering result when compared with the next highest performer, gold (+273 per cent), and to central London real estate (+135 per cent).
Early this year, London private banking firm Coutts released its Objects of Desire index, which analyzed the return on 15 assets across two categories, real estate and alternative investments. In the latter category, classic cars gained 257 per cent since 2005, an edge of 80 percentage points over the next best alternative investment.
The Historic Automobile Group International index tracks the financial performance of 50 rare and exotic classic cars and, in 2013 alone, their value went up by 39 per cent. The group’s research also indicates that more investors turned to cars than other alternative investments, such as coins or stamps, after the global stock selloff of 2008.
While it’s clear that classic cars have genuine horsepower when it comes to investment potential, there are caveats.
Rob Myers is the founder of RM Auctions, a classic car auction company based in Blenheim, Ont., roughly 290 kilometres southwest of Toronto. In the late-1970s, Mr. Myers formed an automobile restoration shop and booked $110,000 worth of business in his first year. The business now encompasses a restoration shop and an auction house, as well as consulting services to collectors. RM Auctions generated $360-million in annual sales in 2013 alone.
Of the 100 most expensive cars ever sold at auction, Myers’s company has been responsible for 45, including five of the Top-10 sale prices in history, according to RM. “This business is 100 times bigger than I ever thought it would be,” he says. But he also stresses the importance of due diligence – and he largely rejects the idea of investing in cars just to make a quick buck.
“Cars have proven to be great investments, and people who were never interested before are interested now,” Mr. Myers explains. “Major fund managers are now looking at classic cars as investments, and some of them are being very aggressive at auction – very aggressive. It makes sense, though. Why would you want to put your money into regular investments when the returns are so low?”
His thoughts are echoed by McKeel Hagerty, president and CEO of Michigan-based Hagerty Insurance Agency, a prominent insurer of classic cars. “There’s a worldwide demand for truly collectible cars that just wasn’t there five years ago,” he notes. “And the availability of these cars is very limited, so the potential returns are huge.”
Mr. Hagerty hits upon the key factor that determines whether a car will increase in value or not – supply and demand. Low production numbers are the most critical consideration, followed by the use of original parts, the quality of any restoration that has taken place, and the car’s provenance in racing and in design.