Investing in classic cars

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Disclaimer: This article does not contain investment advice and only aims to entertain and inform.

In a previous article several alternative investment options were named, in a short series these will be further elaborated with first: Investing in classic cars.

Value

Many people think it is just excessive, spending a capital on a car. Especially since cars decline in value between 10 and 20 percent per year on average.  Yet not every car is a bad investment, as there are plenty of cars that increase in value.

For example, we go back to Italy in 1977. A proud owner of the 1962 Ferrari 250 GTO was told by his wife that the car was making too much noise and was forced to sell it, the market value was around $71,000. Meanwhile, the same car is being auctioned for $50,000,000. Another example is the 1955 Mercedes-Benz 300 SLR Uhlenhaut Coupe, which was auctioned last year for $149,000,000 (Harshvardhan, A, 2023). Furthermore, Jay Leno purchased a McLaren F1 over 20 years ago for $800,000. The value of this car, which is still in his possession, is currently estimated at $20,000,000.

The best-known example of cars increasing in value are classic cars. Although experts still debate this, a car is called classic when it is at least 20 years old and of historical importance. These can still be divided into vintage and antique cars. Vintage refers to cars made between 1919 and 1930. Antique cars were made just before 1919, during the so-called “Brass era,” which refers to the large amount of metal used to make these cars.

To give just one example, vintage cars have increased 185% over the past decade ( Piovaccari, G & Za, V, 2023). In addition, according to the British company Vanarama, classic cars have increased in value by 97% over the past 10 years. This is a substantial increase, especially when compared to gold (45%), art (49%) and real estate in Britain (50%). This large difference between the increase in value of classic cars and other investments shows that this type of investment should be taken seriously.

Auctions

The most common way to purchase a classic car is through an auction. In the Netherlands, auctions regularly take place where the owner parks his classic car. Visitors can make a bid and the highest bid gets the car. Furthermore, there is often an appraiser present, this is someone specialized in the valuation of classic cars. Nowadays there are also online auctions. A well-known example is carandclassic.com. Here there are numerous cars for sale that can be bid on, including cars that cost “only” a few thousand euros. The main difference between online and physical auctions is that physical auctions take place more quickly, so that it is usually known within an hour who has bid the most. Online auctions can take as long as weeks. In addition, it is possible to see the condition of the car during a physical auction, this is not possible in an online auction. However, documents describing the car’s condition are displayed.

Still, at first it seems difficult to determine the market price of a car. Fortunately, Hagerty, an insurer in classic cars, has the solution for this. The firm keeps track of the value of classic cars in an easy-to-read guide. Each model is given a figure based on its condition.

Nevertheless, there is a lot of uncertainty involved in buying a classic car. Although Hagerty’s gives a good indication, there is no guarantee that the guide is completely accurate. In addition, unlike stocks or bonds, a car is physical. Therefore, a garage, for example, must be considered, which entails additional costs, and insurance for classic cars is quite expensive. In addition, this makes the investment a lot less liquid, since it remains to be seen how quickly a buyer can be found. Also, a relatively large capital is needed to profit from possible price increases. However, there is now the possibility of investing in classic cars without physically buying them. There are several funds where investors can invest in classic cars. One example is Azimut, however, investors must put in a minimum of $140,000.

Investing in classic cars is an interesting option, in fact, look at the potential past returns. Nevertheless, this type of investment involves above-average risk. Material damage and limited liquidity are some examples. Therefore, it is wise to consider investing in classic cars only as a hobby and not as a means to get rich. While there are certainly examples of situations where serious money has been made from this type of investment, the chances are slim and uncertain that the same will be successful for you. However, the advent of online auctions does make it easier for individuals with relatively little liquid assets to purchase classic cars.