Historic Vehicles are no longer the exclusive hobby of bearded old men in tweed jackets; they are well established as a high-quality investment asset, having reached comparable status to fine art. They are subjected to similar rules of supply and demand, are largely collected by the same people and sold by the same auction houses. Admittedly there are also some differences between classic cars and paintings, aside from the obvious one that you can’t drive your $50 million Van Gough but you can drive your $50 million Ferrari 250 GTO (on the other hand you need a much bigger wall to hang the Ferrari).
The main difference between the two markets is the risk / return equation. In the art world it is possible and common to invest in artists who are not yet established and some of these may generate extraordinary returns if the artist breaks through. Conversely, there is a real and very substantial risk that this doesn’t happen in which case the investment will not generate any returns.
In the classic car market however it’s as if all the artists are well established. There will be no surprises to the same level as they may occur in the art market; investors will not make ten times their money overnight, but the risk is also much lower.
The economic fundamentals driving historic vehicles’ values are simple, namely:
- The supply is fixed or dwindling. There will be no new additions to stock for obvious reasons; we can’t go back in time and have more of these vehicles made. This means that the traditional bubble bursting oversupply is not going to happen here.
- Each vehicle is made unique by its history.
- Demand is ever growing, as the number of affluent people increases in the established markets and they realise that classic cars are far more exclusive than new sports or luxury cars, which are made in tens of thousands every year. Classic car ownership provides access to unique and glamorous events; it is perceived as “cool”, really exclusive and identifies the owner as a true connoisseur.
- Demand is bound to be further driven by maturing of new and emerging markets, namely in Asia (mainly China, India and Indonesia) and the Middle East, which are set to bring entirely new pools of potential buyers and collectors to the market.
- The current global economic environment is characterised by highly stimulating monetary policies, of which money printing in copious amounts and record low interest rates are just two elements.
This makes investments in hard assets such as land, fine artworks and historic vehicles mandatory for every investor looking at de-risking a portfolio and seeking protection from central banks debunking their currencies.
Supporting this investment status, there are indexes tracking the movements of the classic car market, there are investment advisers for classic cars and there are investment funds established solely to invest in historic vehicles.
The period of 2010 to 2016 was highly exuberant, with most of these indexes going up 300% or more. Things have slowed down since with a modest increase of approximately 50% in the subsequent six years. Due the large number of private transactions it is difficult to put an exact figure on the size of the market, but it is many billions of dollars.
A survey in 2011 by the Federation of Historic British Vehicle Clubs placed the value of the UK classic car industry at £4.3 billion a year and bringing in over £1 billion in revenue from overseas. Thirteen years later this figure is much higher. It also estimated that in the UK alone there are 140,000 people involved in the classic car industry. To put this into perspective, the number of people employed by the IT industry in NSW is 120,000.
This scenario is repeated across continental Europe and the US. Australia is home to more than 700 car clubs and the majority of them are focused on historic vehicles. While some of these clubs may have only a handful of members, others have hundreds of members, bringing the number of people involved into the tens of thousands. There are more than 1,400 businesses either entirely or at least partially servicing the classic car movement in Australia.
Many purists and enthusiast resent this state of affairs and the fact that they are priced out of their hobby by wealthy outsiders, who buy these cars to place into storage. This is indeed a valid point and in a way it is regrettable. However, there are more sides to this story. The first is that not all classic cars sell for millions of dollars. There is still a very large range of relatively affordable, and usable, cars and bikes, in fact most of them. The other point is that the high-end cars are very expensive to restore and maintain, and without the money from the well off collectors it would not be possible to preserve them for future generations, and eventually they would be lost.
There is still room for everybody to have some fun.