The Allure and Intricacies of Investing in Classic Cars

The vintage muscle car or British roadster you picked up during your college years may still hold a cherished spot in your garage, serving as a weekend cruiser. A restored vintage Volkswagen Beetle or a classic Lincoln Continental with suicide doors can often be purchased for under AUD 30,000, enjoyed leisurely, and potentially sold for a modest profit after a few years.

But what about the high-end collectibles that command seven or eight figures? These are not for everyone, but for high-net-worth individuals, they offer a unique way to diversify their portfolio, generate income, and perhaps even take the occasional joy ride.

1971 Valiant Charger

The classic car market has outperformed other collectibles like coins and stamps over the past decade, driven by growing global wealth chasing a limited number of vehicles. The Historic Automobile Group International (HAGI) tracks this market with several indexes, including the HAGI Top Index, which monitors vintage collectible cars from iconic brands such as Porsche, Ferrari, Bugatti, and Alfa Romeo. The Top Index saw a remarkable 33.78% increase in 2019, and despite the pandemic, it still rose by 6.19% in 2020 and 2.73% in 2021 year-over-year.

Similarly, Hagerty, an insurance company specializing in classic cars, runs a market index based on dollar and volume changes, adjusted for inflation. From December 2020 to December 2021, this index increased by 21.49 points, with its market rating reaching a five-year high in December 202

1934 Packard Twelve 1108 Dietrich

At the pinnacle of the classic car market, where vehicles sell for over AUD 1.5 million, you’ll find a mix of obscure and renowned brands. This includes vintage names like Hispano-Suiza and Delahaye, alongside more familiar luxury brands such as Rolls-Royce and Jaguar. Even brands not traditionally associated with high-end exotics can become highly collectible; Toyota’s 2000GT, produced from 1967 to 1970, can fetch over AUD 1.5 million at auction.

1995 McLaren F1

Examples of recent high-end sales include a 1934 Packard Twelve 1108 Dietrich that sold for AUD 2.15 million in 2021 and a 1995 McLaren F1 that set a record at AUD 30.63 million during an August 2021 auction in Pebble Beach, California.

So, what makes a car collectible? A car’s historical significance, rarity, and aesthetic appeal are key factors in its collectability. Vehicles that pioneered new technologies or set new standards for consumer expectations often become sought after, especially if they boast a racing history or were associated with renowned designers, racers, or celebrities. Iconic individuals like Steve McQueen, Paul Newman, or James Garner, who have strong ties to the automotive world, can also enhance a car’s value.

In essence, if a car graced the walls of teenage boys’ rooms, it’s likely to be a good bet. As these boys grow up, they seek to acquire the cars that symbolized their youthful dreams.

What are the associated risks? Classic cars are tangible personal property, meaning you’ll owe capital gains tax on any profit from their sale. Restoration can be extraordinarily expensive, especially for high-end vehicles needing to be brought to concours condition. Ongoing maintenance, storage, and insurance add to the costs, and selling the car incurs commissions, consignment fees, and transportation expenses.

Ferrari Dino 246 GTS

Speculating on new or recent models hoping they will become collectibles is risky. Take the Dodge Viper, for example. Despite initial high hopes and aggressive styling, a 1993 Viper, which originally cost over AUD 77,000, now sells for around AUD 70,000. The same fate befell the 1976 Cadillac Eldorado convertible, initially advertised as the brand’s last convertible but now available for under AUD 38,000, less than its inflation-adjusted original price. Even more affordable classics like the American Viper and Eldorado come with uncertainties. European high-end models face similar unpredictability. For instance, the 1974 Ferrari 308 GT4 initially sold for AUD 33,000, but now averages around AUD 72,000. Meanwhile, a same-year Ferrari Dino 246 GTS can command as much as AUD 510,000.

Defining the ultimate collectible cars is challenging due to shifting tastes and the private nature of many high-end sales. However, Ferrari often tops the list. A 1962 Ferrari 250 GTO sold for AUD 57 million in 2014, only to be surpassed in 2018 when another GTO fetched AUD 72 million at auction. In private sales, these models have reportedly sold for over AUD 105 million.

Bugatti 57SC Atlantics

Other notable sales include one of four Bugatti 57SC Atlantics purchased for between AUD 45 million and AUD 60 million by the Mullin Automotive Museum, and a 1954 Mercedes-Benz W196 Silver Arrow auctioned for AUD 45 million in 2013.

The bottom line is Investing in high-end cars requires significant capital and carries substantial ongoing costs. As market tastes and economic conditions fluctuate, the value of these vehicles can rise or fall dramatically. For those looking to invest, focusing on quality, understanding the demographic, and being aware of market dynamics are crucial. While certain trends, like the spike in Ferrari prices during the late 1980s due to Japanese demand, highlight the potential for bubbles, well-chosen investments in classic cars can indeed be rewarding.

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