Category Archives: Finance

Why Collectible Cars Shouldn’t Be Considered an Alternative Investment

40Are you a financial advisor counseling clients on collectible car investments? Investors have been noticing the collectible car market. And for good reason – it’s grown spectacularly. Though the end of 2015, the rare collectible automotive market was up more than 500% for the decade, according to figures from the Historic Automobile Group International (HAGI) which tracks vintage collectibles through a number of indexes. By comparison, the S&P 500 only went up about 64% in the decade. But recent activity seems to show the classic car market leveling off and that such investments correlate to the overall market.

The Numbers

A series of classic car auctions held each January around Scottsdale, Ariz., showed flat prices for top-end collectibles. Total sales through Jan. 30 stood at $242 million, down more than 10% compared to last year’s auctions. The average sale price was $104,000 this year, compared to nearly $120,000 in 2015, according to figures from Hagerty, the well-known classic car insurance and pricing company. (For more, see: Investing in Collectible Cars: Top Tips and Risks.)

So, are we experiencing a bubble in classic car prices, and if so, might that bubble be about to burst?

“To me, it indeed looks like a bubble in many segments of the market,” said David Bentson, a principal at Precision Automotive Group, which advises on buying, selling, and maintaining classic automobiles. “We are seeing highly inflated prices in the market for air-cooled Porsches and Ferraris, for instance.”

Indeed, some rarer models from those brands have sold for truly staggering prices. For instance, the Ferrari 250 race car from the early 1960s has sold for more than $38 million. Bentson explained that demand has outgrown supply in the classic car market. “Collecting used to be the domain of car guys,” he said. “In recent years, however, people are getting involved with the market purely as an investment.” (For more, see: see: 5 Tips for Vintage Car Collecting.)

This extra demand from non-enthusiasts is driving up prices, Bentson said, but will also exacerbate an eventual price fall. “If you have a collectible car you love, you probably aren’t going to sell it even if you see its financial value dropping. But those who collect cars solely as investments are much more likely to quickly dump them if the market falls.” Bentson noted that he expected prices to fall in parts of the collector car market in the coming months. “This market is cyclical, but it’s not tied to the stock market or even the value of other collectibles,” he said.

If the collectible car market is due for a correction, there’s no telling how severe it might be. “We have certainly experienced a boom over the last decade but the years with the strongest growth seem to be behind us,” said Dietrich Hatlapa, founder of HAGI. He noted that his main index, the HAFI Top Index grew more than 45% in 2013, but in the two years since growth declined to about 16% annually. (For more, see: The Best Sports Cars for Investors.)

Investors must understand that just as real estate prices can go up most years, but still suffer periodic corrections, so too does the collectible car market face corrections. “Nothing goes up forever and all the time,” Hatlapa said. “It is absolutely possible that prices will come down, especially in some sections of the market. You just have to look at other collectors’ markets where we have seen significant corrections since the financial crisis in 2008.”

The experts warn that corrections can happen quickly, especially when macroeconomic factors influence investor behavior. Hatlapa noted that in the second and third quarter of 2009, in the wake of the financial crisis, his firm’s index for classic Ferraris corrected by more than 15%. What sectors within the classic car market seem most secure against substantial loss? “Quality and rarity are the main factors offering protecting during periods of market weakness,” Hatlapa said. He said that cars with a known and interesting history (such as race cars) tend to hold their value better than most, as do those in top condition retaining all original components. (For more, see: 3 Alternative Investments the Ultra-Rich Usually Own.)

Investing in cars is not for the meek or cash-strapped. Beyond the initial purchase price, there’s also restoration costs to consider, as well as outlays for ongoing maintenance, storage and insurance. These costs add up, even at the low end of the market.

Currently, an investor can buy a decent 1990 Mercedes-Benz 500SL for about $10,000. That’s not so much. But that fine piece of German engineering is now 26 years old. A replacement inner door panel insert can run more than $300, without labor costs. If the removable hard top is damaged, a replacement could cost another $1,400. The SL also comes with a soft top, and endless other parts that might need to be sourced and replaced.

The Bottom Line

If you’re advising an investor on the collectible car market, the best advice may simply buy what they love. Collecting what one personally enjoys is safer than collecting solely for investment purposes. After all, collectible cars can be subject to the vicissitudes of the market just as stocks, real estate or other asset classes are. Owning a classic provides social recognition and owners can get personal value by driving the car, or even just looking at it. They can also reap networking benefits by socializing with other enthusiasts at car shows and events. A car that excited someone as a teenager will still excite them as an adult and that’s worth something. (For more, see: The Risk of Investing in Art and Collectibles.

Cars to Buy Now

39 Speculation has never been the best reason to buy a collector car. More often than not, the buyer loses money on a car that he or she didn’t want in the first place.

On the other hand, there’s no shame in buying something that you love, enjoying it for a few years, then making some change and trading up to something else that you love. And while there’s no such thing as a sure thing, here are five that are a good bet to appreciate significantly in the next five years:

  • 2001 Panoz Esperante – If a Dodge Viper is a bit too much of a blunt instrument for you, might we suggest a Panoz Esperante. A race-bred, all-American sports car from Georgia, its well-engineered suspension and generous use of aluminum (plus a Ford modular V8) make it an ideal track day weapon that you won’t see in every paddock. Only its looks, forgettable from the rear and bulbous from the front, detract. The car remains in low production, but if this changes, it’s not unreasonable to think that the Esperante is a good appreciation bet. Asking prices start at around $26,000.
  • 1992-95 Dodge Viper RT/10 – And if it isn’t too much of a blunt instrument… Fat tires, 400+ horsepower, minimal weather protection (including flimsy side curtains and a toupée for a top) and side exhausts that sound like all of hell hound Cerberus’s heads belching in unison. It can only be a million dollar 427 Cobra, right? Not so fast, the first-gen Dodge Viper RT/10 checks all those boxes and it’s silly cheap at the moment. Early Vipers with some miles have asking prices of about $25,000, which means you can probably still snag one in the low twenties if you’re lucky. That’s cheaper than a mediocre Cobra replica. Fifty to sixty thousand dollars for one of these in five years doesn’t seem remotely unreasonable.
  • 1992-97 Ferrari 456 GT – Ferrari is done with the clutch pedal and while those shopping for new Ferraris don’t seem to miss it, manual transmission Ferraris from the ‘90s and the aughts are hot at the moment in the collector market. Witness the meteoric rise of the 550 Maranello among others. The 456 GT has been somewhat overlooked. The autobox 456 GTA cars with transmissions that can cost over $25,000 to repair have been stuck in the forties and fifties for some time, but the manual trans GTs are about $25,000 to $35,000 more and probably climbing. Only about 1,500 were built making them almost as rare as Daytonas.
  • 2008-09 Honda S2000CR – As affordable roadsters from the aughts go, the S2000 is far more entertaining than anything other than a BMW Z3 M roadster, maybe. And unless you like your torque and horsepower to be of the Jeffrey “the Dude” Lebowski lazy variety, it’s incredibly satisfying to drive with peak horsepower of around 240 coming at a remarkable 8,300 rpms. The CR or Club Racer was a rare North America-only variant with fewer comfort features and lower weight. Fewer than 700 were built over two model years and most have been put to their intended use and tracked to death. Surviving gently used examples are blue chip Japanese collectibles. They’re about $25,000 now. Anyone who thinks that fifty is silly hasn’t watched Acura NSX prices lately.
  • 1982-91 Pontiac Trans Am – Of all the cars on the list, this one may come closest to a sure thing. We’ve all seen the Smokey and the Bandit-era 1976-77 Trans Ams go northbound over the last few years. In 2007, when Hagerty Price Guide publisher Dave Kinney decided to do the Bandit Run and write about it for the New York Times, he had his pick of good cars in the seven-to-ten thousand dollar range. Now those cars are in the $30-$50,000 range. Well guess what, the kids who couldn’t get enough of the show “Knight Rider” are now coming into some bucks and guess what they’re going to want? For the time being, these are about ten grand. Is double that unreasonable in five years? We think not.

‘Passion investing’ in classic cars is gaining speed

38So-called passion investing — allocating wealth toward high-value collectibles — has been around for about 10 years and is now expanding into the classic car arena.

Classic cars are gaining attention due to their nearly 500 percent returns over the past decade, outpacing art and wine by more than 100 percent, as reported by the Knight Frank Luxury Investment Index.

“Passion funds,” mostly known for investments in art portfolios, have been around since about 2006, with classic car passion funds coming on the scene about five years ago, said Enrique Liberman, partner, Bowles Liberman & Newman.

Liberman is a transactional attorney who specializes in luxury asset investment funds. “Ten years ago, classic cars were looked at as collectibles, but now people are recognizing them as an asset class,” he said.

He has been seeing a lot of interest in new car funds lately, with many inquiries coming from first-time fund managers, typically classic car collectors or dealers.

Clarifying the term “fund,” Liberman explained that “a fund has a person or group that comes up with a structure and terms and offers it, whereas an investment collective is when a group of people come together and decide collectively on the [investment] terms.”

Under the radar

Generally, car funds keep a very low profile, Liberman said, raising funds through their own connections and registered broker-dealers.

“When you have a fund, you need to be very careful of what can and cannot be said,” he explained, referring to regulatory restrictions. “You can’t solicit on a website.”

Another reason for staying under the radar is to not alert the marketplace.

“Dealers will want top dollar if you advertise what you have in your collections, and buyers prefer to buy from other collectors, not investors or funds,” he said.

Fund investment approaches vary widely, Liberman said. Strategies include a focus on make, such as Ferrari, or on restoration or geographic arbitrage (buying in certain countries and selling elsewhere for a higher price).

The Rolling Art Fund 1, by Rolling Art Advisors, is a private equity fund, now fundraising for $50 million to $100 million, focused on limited-production classic sports cars. It is only for accredited investors.

“In my decades of doing this, I’ve never seen collector cars recognized so universally as alternate assets and works of art.” -Steve Linden, co-founder and fund manager at Chrome Strategies Investments

“A few years ago, we noticed the growth in demand and interest in [investing in] art,” said co-founder Joshua Wekstein, an attorney with a longstanding interest in historic sports cars. “We view these cars as art, and we want to have museum-quality pieces in our portfolio.”

Rolling Art Advisors co-founder Marc Sharinn is an attorney with investment funds experience who collects classic sports cars. To establish proof of concept, the founders started a test portfolio of five cars in 2013. Their strategy is to choose cars of limited production (under 500 units), with engineering, mechanical and/or historical significance; a handmade craftsman component; and provenance (documented history).

In less than three years, the overall value has increased more than 100 percent, Wekstein said.

Another private placement fund now in fundraising is Chrome Strategies Investments, managed by Chrome Strategies Management. Co-founder and fund manager Steve Linden is a well-known vintage auto appraiser, broker and author who has specialized in the classic car market for 30 years.

His fund’s strategy is to look at specific auto nuances and attributes that other collectors and investors are overlooking.

“I’ve seen trends come and go, and we don’t want to focus on one particular marque,” he said.

Why now?

“In my decades of doing this, I’ve never seen collector cars recognized so universally as alternate assets and works of art,” Linden said, explaining why the time is right for this type of investment vehicle. “We are seeing record prices set at major auctions and a record-setting run-up in values, with cars going to every imaginable point across the globe.”

In the last three to five years, the volume of global purchases and shipments has exploded, he said, driven by new investors, as opposed to casual collectors.

“I’m getting a lot of inquiries from investors, and I saw a need to offer and develop a diversified portfolio product,” Linden added. “I often tell people, ‘If you think you can invest in one car, that’s gambling. It’s like buying just one stock.'”

The classic car is the investment star

37Clapham Common, 1996. Down a narrow south London lane, I gazed through the little showroom window into the aptly named Paradise Garage. Inside was a California sage-coloured Aston Martin DB4 Zagato, beautiful, and rare — one of only 19 made. It was valued at £500,000 — way beyond my means. I would soon sell my flat round the corner for under £200,000 (how I would regret that sale!) and move to Seattle.

Twenty years on, it is instructive to draw a fresh comparison. Since then, the benchmark FTSE 100 index has more than tripled when measured on a total return basis. The two-bedroom flat that I’d rashly sold, which offered south facing views over Clapham Common plus a blue heritage plaque honouring Graham Greene, has risen in value a multiple of five — and this doesn’t take into account the stream of rental income I could have received, or the potential tax benefits of it being deemed a primary residence.

But even the increase in London property prices pales in comparison to that memorable Aston Martin Zagato. Another of the 19 made — licence plate 4 RTA, also California sage-coloured — recently sold at a Sotheby’s auction in New York for $14.3m, or slightly more than £10m at current exchange rates. That’s a twentyfold increase, and while there are auction fees to consider, it also comes with an exemption from UK capital gains tax.

With the benefit of hindsight, investing in a classic car back then would have set me up for life. But as this alternative asset class breaks one valuation record after another, are those impressive returns about to come off the gas?

The 4 RTA is far from being the most expensive car to sell at auction in recent months. That accolade goes to a red 1957 Ferrari 335 Sport Scaglietti, sold in Paris for €32m (more than £25m). It was one of four made, but given that it came second at the 1957 Mille Miglia, set a lap record at Le Mans and was driven by Stirling Moss, it might more accurately be judged as being one of one.

Scarcity alone cannot explain these valuations. Emotion cannot accurately explain them either, in the way that it enters the frame with, say, fine art. However, emotion as a line of inquiry gets us closer. In the words of Matthieu Lamoure, managing director of the Artcurial Motorcars auction house that sold the Ferrari 335: “The market is a question of generation. You want to own the car that was a dream for you when you were a child.”

Two examples, from opposite ends of the classic car spectrum, appear to confirm the driving role of nostalgia.

The Aston Martin DB6 (produced from 1965-70) is functionally equivalent to its predecessor DB5 model (1963-65), but for the enlargement of the cabin space. The two cars share the same engine, gearbox, back axle and chassis design. Yet while a pristine DB6 now sells for more than £400,000, an equivalent-condition DB5 will change hands for almost double that amount.

This is partly due to more DB6s than DB5s being produced, however the most convincing explanation is James Bond: specifically Goldfinger, but also the car’s numerous cinematic outings during the Pierce Brosnan and Daniel Craig years, and possibly even those little model DB5 toys that current buyers may well have been gifted in their youth.

Consider also the Mark 1 Golf GTi, that loveable boxy Volkswagen which was popular in the 1980s. Until recently they were practically worthless. Today, they trade for upwards of £15,000 in the right condition. It is hardly a rare car (though it might have become scarcer owing to the numbers written off by those learning to drive 30 years ago). Cult appreciation, and valuations to match, are emerging in various parts of the classic car market. Indeed, there is a healthy business of speculation now about which cars might become future stars.

Much depends on what happens to the market overall, and whether it can keep rising in the way it has. Dietrich Hatlapa of Historic Automobile Group International (HAGI) compiles an index of classic cars that might be characterised as the mid-to-top end. The index has been quoted in publications such as the Knight Frank Wealth Report. It confirms the outperformance of high-quality classic cars over recent years relative to asset classes such as prime London property. But can this strong performance continue — or are classic car valuations heading for an expensive crash?

Looking back through the history of the index, the last time valuations received a sizeable dent was in the early 1990s. Back then, market commentators blamed speculators with borrowed money for pushing up prices. This time around, they’re keen to stress that new, wealthy collectors from around the world have expanded the market for the best cars, and are less likely to turn into forced sellers should values take a u-turn.

“In the long term, we will probably be in a world of driverless vehicles — the sort of machines being developed by Google now, theoretically making anything we know today as cars into collectable items,” comments Mr Hatlapa. “In practice, some cars will always be more collectable than others.”

Leading dealers concur with his cautious confidence, but reiterate the need for discernment.

“Whether you’re looking at a £15,000 Golf GTI Mark 1 or a £750,000 Aston Martin DB5, the key is being selective,” says Paul Michaels of Hexagon Classics, which operates two London showrooms in South Kensington and East Finchley that resemble grown-up toy shops.

“The very best cars — meaning those with full histories in exceptional condition, either completely restored or lovingly maintained with some age-related patina — will always command the highest prices.”

Mr Michaels expects price rises to average a more sensible 7-8 per cent over the next three years — which could be wiped out by the cost of maintaining and storing a classic vehicle — but others are more cautious.

“If you look at the latest auction results, sell-through rates remain strong, but the number of vehicles not making their estimate has risen,” points out Simon Marsh, a partner at wealth manager Killik & Co. “However, this might have more to do with overambitious pricing by sellers, aided and abetted by the auction houses.”

Another car that has performed well in recent years is the bellwether E Type Jaguar. I’ve had the privilege of owning one myself. My dad had a 1965 Series 1 coupe; it was the car I coveted in my youth. In 2005, I put a cash bonus towards buying an opalescent silver-blue 1967 Series 1 roadster in San Francisco for the dollar equivalent of £47,000. I’ve heard aficionados talk about these cars in terms of a longing, an ache in the chest. For what exactly? Not for the driving experience, based on my experiences of owning one.

On one terrifying occasion in Seattle, my E Type stalled and rolled to a stop in a four-way intersection beside the city’s arterial Interstate 5 freeway. For a moment, there were just slack-jawed stares from the SUV drivers seated high above me. Soon blaring horns too, from further back, for this was rush hour. I kept pressing the starter button and only on the seventh or eighth try did the engine fire.

Yet even in stressful moments, it was hard to resent this car. The old wool smell of the cabin; the polished wood of the wide steering wheel; the purr of the engine and that exhaust note (while it worked). The 4.2 litre engine could pull away from traffic lights and accelerate to 70mph in second gear. Modern economy four-doors might go faster and certainly offer an easier driving experience, but no car won the same approving looks on the road.

I shipped the E Type back to the UK when I returned to London, and there the excitement continued — of seeing whether the car would start, or stall in traffic. Above 50mph the car handled impeccably and sat on the road like a stone, but at lower speeds the steering was laboriously heavy … and so the list of practical drawbacks went on. Locating and budgeting for storage proved the final straw, and so I sold it to a dealer for £60,000 in 2010 concluding that central London simply wasn’t the E Type’s natural habitat.

It proved to be another asset sale I would later regret. Having my time again, I would have held on to it, and not just because a Series 1 roadster in the right condition can now fetch £175,000 — fast approaching the average UK house price. Today, there are new solutions for alleviating the stresses of classic car ownership.

One is Bicester Heritage in Oxfordshire, an hour’s travel time from central London. This former RAF Bomber Command base is being converted to a hub for classic car storage, maintenance and restoration. For a basic storage fee of £155 a month including VAT, you can leave your car safe in the knowledge that its every requirement can be attended to, should need arise — and believe me, it will.

The trend towards outsourced ownership arrangements is particularly noticeable at the top end of the market. John Goldsmith of Goldsmith & Young, an Aston Martin restorer in Wiltshire, has maintained and raced cars for both the Goodwood Revival and Festival of Speed meetings. Indeed, he and his wife Gillian raced 4 RTA (the auctioned Aston Martin Zagato) at the first revival meeting in 1998.

Over the intervening two decades, Mr Goldsmith has seen a marked change in the composition of the starting grid at Goodwood. “Back in 1998, when the Revival Race began, the vast majority were owner-drivers. This is no longer the case,” he says.

The change reflects a variety of factors, including Goodwood’s astute involvement of celebrity drivers such as David Coulthard, who have only added to the glamour of the event and broadened its appeal. Rising vehicle values have also played a role. Some owners understandably seek a more cautious and arms-length relationship with an asset worth £10m plus, preferring professional drivers to take the cars out on the Goodwood track in order to enhance their history and provenance.

This said, the “gentleman” owner-driver is by no means extinct on the Goodwood starting grid. “Drivers such as Nick Mason are still there,” enthuses Mr Goldsmith, “attracted by the adrenalin-fuelled rush of it. Some relish the gladiatorial aspect of the occasion, which may, in certain cases, reflect their business lives … while others are attracted by the idea of reliving their youth.”

Away from the Goodwood starting grid, there is a gathering sense of caution. “If you’re looking to double your money overnight as you might have done with certain models in 2014, then forget it,” warns Paul Michaels of Hexagon Classics. “We’ve entered more sober times.”

Nevertheless, these classic cars represent a unique asset class — part investment, part thrall to automotive art and part childhood dream. Collectable toys might be the closest investment comparison, yet unlike those little James Bond Aston Martins that tumbled out of Christmas stockings, these ones now come with very grown-up price tags.

Costs of classic car ownership

Classic car ownership brings specific costs and benefits relative to other investments. The tax treatment is generally benign. In the last Budget, classic cars were permanently exempted from UK road tax — although a classic car is defined as a vehicle more than 40 years old, which may disappoint owners of vehicles built after the start of 1976.

If the car is imported from an EU country, it will not be subject to UK import duties. Provided that VAT has been paid in the country of origin and it has more than 6,000km on the clock, then no import VAT will be due. From outside the EU, UK duties and other taxes may apply.

Classic cars are free of UK capital gains tax, a significant advantage for those owners now sitting on substantial gains as prices have soared. Although they will probably have auction fees or other sale costs to pay, not a penny of tax will be due on the sale of their vehicles, which are classed as “wasting” assets by HM Revenue & Customs. Anything mechanical is judged to have a useful life of 50 years or less, and to have little or no value after that.

For owner-drivers, insurance is low for road use — especially if the car qualifies for club rates through an organisation such as the Jaguar Enthusiasts’ Club. A very rough guide is to budget 0.5 per cent of the vehicle’s value by way of annual premium. But insurance for the racetrack is a different matter. Owing to both high premiums and deductibles, some owners of cars raced at events such as Goodwood accept the risk of accident repair costs, given that the real value of these vehicles lies in the chassis number.

Also to be factored in is the cost of more routine repairs, which — depending on the vehicle and repair type — can quickly run into the thousands if not tens of thousands of pounds. As a rule of thumb, owners should allow another £500 to £1,000 for an annual check up and service. Storage needs to be considered too; this can range from a negligible amount for a basic site in rural areas to up to £300 (including VAT) a month for a secure, climate-controlled facility in central London.

Demand has grown for “turnkey” service arrangements. For example, Bicester Heritage in Oxfordshire offers both storage and on-site repair and maintenance.

“It is the automotive equivalent of keeping a boat in an atmospheric marina,” explains managing director Daniel Geoghegan. Storage at Bicester costs £155 a month (including VAT). Just an hour’s journey time from central London, the site supports 35 service companies, including an upholsterer and a Bentley specialist. Mr Geoghegan is now considering expanding the business to other locations.

Additionally, owners may be advised to arrange a breakdown service with an organisation such as the RAC. In recent years, the costs explained above have been dwarfed (at the mid-to-high end of the market) by rising car values, the question now being whether price rises continue — and if so at what rate.

Improving The Look of Your Car

36Everything ages accordingly. That is a law of nature we cannot change. So do not be surprised if your car which looks brand new then, looks so old now.

Do not worry, too, for you can bring back your car back to its former glory one step at a time. And what better way to start making your car look more attractive once again than by changing your car upholstery?

To put it simply, car upholstery refers to car seats, complete with padding, springs,  webbings as well as different covers the most common of which is leather. Car upholstery is one of the most worn parts of the car in Tampa because it is subject to human interaction very often. However, unlike most auto parts, car upholstery is not frequently replaced due to practicality issues. Seat replacement costs a certain sum such that people in Tampa opt for car upholstery repair or seat cover replacement instead.

Still, there are a lot of people in Tampa who pay professional car upholstery makers to make customized car seats. Custom car upholstery is seen as an investment because it makes your vehicle more unique. And as we all know, unique and one-of-a-kind looking properties have higher value in this modern world where mass produced products dominate the day.

Having a custom car upholstery in Tampa is very easy once you find a very good custom car upholstery specialist in the area. Doing custom car upholstery by yourself is not advised especially if you are doing it for the first time. That is unless you want to do some experimentation to improve your skills. But if your goal is to have a nice, new, one-of-a-kind car seat, it is better to pay a professional to do the job. With a skilled professional, you are not limited to the possibilities of what you can do. You can work hand in hand in selecting styles and materials  that will enhance or totally alter the look of your car’s interior.

There are a few custom car upholstery specialists in Tampa. But surely, you will find the one that will be fit to provide your needs when it comes to custom car upholstery.  You just have to know where to look and where to find them. Reading online reviews is a great way to get you started in your search.

Custom car upholstery is the start of your quest to improve the look of your car and make it feel brand new. Contact your local custom car upholstery specialist today.