Opportunity for the Enthusiast?
We are currently experiencing extraordinary times – coronavirus is sweeping across the globe, lockdown is impacting billions of people and governments are rolling out war-time levels of financial support to help keep economies afloat.
Many parallels have been drawn with the 2008 financial crisis and the impact that this had on the wider economy, however there are several key differences this time around and the knock-on effect that these may have on the specialist car market could also be different.
At the end of 2007 as the previous financial crisis began, the Bank of England interest rate was 5.5%, by the end of 2008 it was 2.00% and by early-2009 down to 0.5%. With interest rates so low the market for collectibles was set – why leave money in the bank earning next to no interest when it can be used to buy something that brings gains in other ways? Art on the wall to be seen and appreciated, a statement piece of furniture or a bucket-list car in the garage would be much more appealing.
Low interest rates were combined with the launch of the HAGI indices in 2007 which helped frame classic cars in a new light. As a result, the rhetoric around classic cars slowly began to change and from 2009 to 2014 there was the emergence of classic cars being viewed as an asset class; numerous articles espoused the benefits of classic car investment such as the Guardian in 2013 “over 10 years the performance of automobiles is…up by 430% compared with 55% for the FTSE and 273% for gold” and Knight Frank began to include classic cars in their Luxury Investment Index alongside property, stamps and wine.
Investment funds were created purely to speculate on the rising values of the classic car sector, launched with gusto and waves of publicity before slowly fizzling out in most cases. These weren’t collectors or passionate owners, but speculators who continued to drive up the market. Rather than buy cars for personal reasons, some instead bought instead on what would appreciate the fastest. These buyers joined with the aforementioned group of those just wanting to ‘park’ their money somewhere other than the bank.
We are unlikely to see new buyers of either category now enter the market as the wider financial situation is different. Going into the coronavirus pandemic interest rates were already low at 0.75% but have been brought even lower to 0.1%. This means that this time around it is now unlikely that cars will be used as a store of wealth as they were in 2008 – interest rates have been consistently low for the last ten years and so there is no dramatic shift in the same way that there was previously and classics as an asset class has be covered in the mainstream press now for many years.
For those investors who previously entered the specialist car market purely for financial gain other opportunities may now arise in the financial markets meaning that the demand generated by that sector of buyer further erodes over time as they exit the market. After all, the buying decision for investors was unemotional and would continue to be so, a car may never have been bought with passion or even driven, it was purely a financial instrument.
Currently the market is to all intents and purposes at a standstill – dealers are closed and travelling to collect a car even bought unseen would not be deemed essential travel. There are some auctions that went ahead before the ban on non-essential travel was introduced, and some planned for the coming weeks behind closed doors. The lots that have sold have typically been at or slightly under the lower end of the estimates with the exception of some emerging modern classics, which means that we could be seeing further price adjustments in the coming months.
The reduction in market values will impact many in the industry as some restorations become unviable at a lower price points and dealers holding stock bought before the pandemic arrived will have suffered weeks, if not months, of having their forecourts closed leaving them unable to move on their stock. Furthermore, there will be parts of the market who have to sell no matter the price – those impacted by job losses or a reduction in business may have no choice but to sell and sympathy goes out to those genuine enthusiasts in the current climate.
All of the above does now present an opportunity for those who have not bought in recent years to obtain their bucket list cars at prices and interest rates that have not been seen for many years – markets driven by enthusiasts rather than speculators may be about to emerge over the coming months.
Published for Historic Motor Racing News, April 2020