1938 Talbot-Lago T150-C SS Teardrop Cabriolet by Figoni et Falaschi, sold in 2013 for $7.2-million.Michael Furman
Less than two kilometres from the Milan Cathedral in Italy, on Via Carlo Goldini, a group of faithful enthusiasts worships at an altar of a different kind – that of the internal combustion engine. This is where members of the venerable Italian car organization Club Milanese di AutoMotoveicoli d'Epoca (CMAE; est. 1959) gather to discuss their favourite pastime.
Fittingly, the clubhouse is a converted car repair shop tucked away in an underground parking lot. Just inside the entrance, three classic cars are parked in a roped-off slice of real estate – or, rather, two cars and one disembodied chassis – but none look particularly special or collectible.
The clubhouse comprises a lounge area and a slightly more formal meeting space with small tables and accompanying chairs. The walls are chock-a-block with banners, plaques and framed photographs. It's a decidedly informal space that serves to be warm and welcoming – as are the glasses of prosecco and slices of salami proffered by a member who stands behind a bar.
The club has about 2,000 members from all over Italy and, indeed, around the world. One of the members is Mario Righini, a collector who happens to own one of only two examples of the Auto Avio Construzioni 815 ever built. The 815 was the first car designed and built by Enzo Ferrari, in 1940, before he went on to establish his eponymous company.
Half of the extremely limited production run was scrapped in 1958, meaning that Righini's car, which was raced by former World Champion Alberto Ascari, is the last one standing. As the story goes, representatives from Ferrari, blank cheque in hand, have attempted to buy the 815 from Righini on a number of occasions – it may be the most valuable car in the world.
Hearing this story from three of Righini's fellow CMAE members seems like a natural way to start a conversation about the investment potential of classic cars. And it is. But the conversation keeps coming back to the heart of the matter.
"I hate the question, how much is your car worth?" says club president Marco Galassi, an architect by trade. "It's about passion, it's about the story."
He notes that the CMAE is as inclusive as they come; members range from someone who owns a single Vespa to another who has 25 Ferraris, but everyone is treated the same. Mr. Galassi owns a classic Ferrari himself – and a valuable one at that – but he prefers instead to talk about another car, the proverbial one that got away.
In 1990, he ventured to the United States to add another classic car to his collection and he ended up having to choose between a Mercedes-Benz 300SL Roadster and a Chrysler Town & Country Convertible. At the time, the Chrysler cost about $15,000 less, so Mr. Galassi went for it. Today, pristine versions of the 300SL garner $1-million-plus bids at auction, while interest in the Town and Country levels off at one-tenth that amount.
While husband-and-wife CMAE members Marco Leva and Alexia Giugni don't claim to be in the same orbit as the likes of Mr. Righini, their passion for the automobile runs just as deep. The couple regularly compete in classic car rallies such as the Rallye Monte Carlo Historique, Ms. Giugni in her 1958 Porsche 356 and Mr. Leva from behind the wheel of one of his classic Alfa Romeos or Lancias.
Ms. Giugni is a particularly interesting case because she has more than 20 years' experience in investment banking and is currently a managing director for financial services company UBS AG in Milan; in other words, she knows the markets – and, at times, she has chosen not to play them.
"In 2009, people in Italy were wondering if the euro was at stake and we were undecided over a couple of cars we liked," she explains. "We figured that a good, in-demand vintage car would have potential to appreciate and would be in-demand, no matter what happened with the euro."
"But in our case," she adds, "it was cars we liked and not a pure investment."
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.
As with any form of investing, the challenge is not in figuring out what has already gone up in value – it's in determining what's likely to go up in value.
An investor with millions of dollars to play with could purchase a low-volume Ferrari – arguably, the golden goose of the collectible car circuit – and be safe in the knowledge that its value will increase. But the cost of entry is steep already; for example, in just the past two years, the Ferrari 250 GTO Series II has doubled in value to $30-million.
The other significant challenge, Mr. Myers says, is that investing in cars is not exactly the same as investing in fine art, although there are parallels. "Automobiles need insurance and maintenance and space for storage," he notes. "If you're not mechanically inclined, how do you take care of your car? You need to do your homework before buying."
That proviso applies even if you decide to get involved in a classic car investment fund. Mr. Hagerty notes that these funds have the purchasing power to play in the big leagues, which can be very appealing: "In Switzerland, there is a private group with $100-million investing in classic cars. For some investors, this could be a great way to diversify your portfolio."
For his part, Mr. Myers is not a big supporter of the investment fund route – and he reports that he has turned down offers to become involved as an adviser. "With these types of things, you need to ask questions, just like with mutual funds," he says. "People are looking to get fees for managing the funds, so what are those fees? How much of their own money is invested in the funds? Where are the cars being stored and cared for?"
Ultimately, everyone involved in the classic car field, from the private collector to the heads of companies that deal with classic cars, seems to agree that it's best to enter this field more out of passion than because of the numbers; the returns will hinge on making the right purchase decisions and giving the investments the TLC they need.
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