Cars can be a notoriously bad investment, losing their value as soon as they’re driven off the lot. Some, however, can be serious money-makers – especially if they’re expensive to begin with. Just ask Robert Herjavec, a former dragon on CBC’s Dragons' Den and now a shark on ABC’s Shark Tank.
“Frankly, if I was not in the cybersecurity business I would be in the exotic car business full time,” Herjavec said. “The only thing I know as well as security is cars.
"You can make incredible money with cars. If I was to pit my investments in cars against the market, I am way ahead. I have had a portion of luck and knowledge that has served me well.”
The Herjavec Group was founded in Toronto and is still headquartered there, but Herjavec now lives in Los Angeles, where he could drive any vehicle in his large collection of cars year round. But he doesn’t.
“The funny thing is I don’t even drive the ultrarare cars I have any more, except for limited miles for service, but keep them in a secure warehouse,” he said. “[They’re] no different than art or another type of security.”
If you have knowledge and a good eye, and no small portion of luck, Gord Duff agrees there’s money to be made with cars. He’s the head of global auctions for RM Sotheby’s, based in Blenheim, Ont., which is one of the world’s leading automotive-auction companies.
“I’ve seen lots of clients make money, but I’ve also seen lots of clients lose money,” Duff said. “It’s difficult to get in it purely for the investment – it’s mostly driven by people’s passion for particular makes of cars. But sometimes they get lucky and the market takes off and they make a considerable profit on the car when they decide to sell it.”
It’s safer to be in for the long run, he says, as the demand ebbs and flows. “For example, a 1989 Lamborghini Countach anniversary car was $120,000 at one time, and I think we sold one for a little over $400,000 that was very low mileage. But you can’t get that today. If you bought at the peak, you’re losing money if you want out now.”
That car would probably be worth $300,000 today. Its price would have been driven up by the fervour of the auction and its rarity, but since then other Countach owners have seen the demand and sold their cars, the price dropping with the greater supply.
It’s all about supply and demand, and for Herjavec, that means rarity and exclusivity.
“I recently bought a Lamborghini – ultra, ultrarare, the Aventador SV Roadster,” he said. “Lambo only made 500 of them. But I worried even that was not exclusive enough, so I said to Lambo … ‘If you build it and certify to me that it is the absolute last one ever made, I will buy it.’ I leveraged my status and experience to get one. By the time it was built, everyone wanted that one car. Look at the new Mercedes One – it’s $3.5-million and completely sold out. They are already trading above that price, if you can get one.”
Manufacturers are happy to make limited numbers of supercars – and to have others profit from them over time – because they need “halo” vehicles for the rest of their lineups, the cars that bring in their true income. A buyer will purchase a $300,000 Ferrari if it shares lineage with a million-dollar Ferrari, or a $30,000 Nissan 370Z if it shares a family tree with a $125,000 GTR.
“A nice car is still $100,000, while a collectible or investment-grade vehicle is $1-million-plus,” Herjavec said. “Having said that, just because you spend $100,000 does not mean you get a nice car, and spending $1-million does not mean you get an investment-grade vehicle.
“What has changed is the price point on the high end. The Ferrari LaFerrari was a benchmark because it cost $1.6-million, but the prices quickly jumped to $3.5-million and more on the secondary market. Other manufacturers caught on, and now the sky is the limit.
“The new Bugatti is $2.3-million if you are willing to wait 18 months and if they ‘let’ you buy one, but if you want one right now and are just an average, run-of-the-mill really rich guy, the cost is $3.5-million. Why? Wealth. There is more wealth in the world and people want the one thing that simple money can’t buy: exclusivity.”
He’s right. The average rich person cannot just walk into a showroom and buy a limited-edition supercar. The demand is too great. When Ferrari created the $1-million Enzo in 2002, it limited the production run to 400 vehicles (including one as a gift to the Pope). To buy one, a purchaser had to have a history of owning Ferraris and also had to agree to keep the car at least a couple of years, so it would be driven and appreciated and not just flipped.
Ferrari quickly realized it could have sold at least twice that number, with unsuccessful buyers making offers to Enzo owners of $2-million and more.
When Herjavec put his own LaFerrari up for sale online, Ferrari was furious. Even so, he says he now has a good relationship with most manufacturers and buys most of his vehicles from them directly. For him, the most unpredictable car maker is Mercedes.
“There is an amazing car Mercedes made called the SLR (from 2003-2010), and another one called the SLS (from 2010-2015),” he said. “The SLR was hugely expensive, prices dropped like a rock, and now, a few years later, they are trading at twice their original selling price. The SLS, I still think, is one of the most beautiful cars ever made. I bought it, noticed that prices were dropping quickly and took a small loss. Today they are back where they originally sold for and I think will appreciate over time.”
The key, however, is first to buy a car you like. “Then if you lose money, you’re still happy that you owned it,” said Duff at RM Sotheby’s.
“You enjoyed it while you had it. If you’re buying something purely for the investment then you’re just shoving it in your garage and praying you’ll make money on it, but there are probably better things to invest your money in. You’ve got to love what you’ve got.”