Regardless of where in the world you live—or whether you follow the financial markets—you’d be hard-pressed to not be familiar with the recent implosion of the American sub-prime lending market. The repercussions have sent a shudder through the worldwide financial community and have caused pundits and fund managers to start bandying the dreaded R-word—recession. It’s, at times like this that, invariably, I start hearing whispered questions, “What do you think this will do to the car market?”
With the stock market having been so strong in recent years, it’s been some time since I have had to warm up the old Ouija board. The problem in this case is that the crystal ball looks fuzzy (maybe it’s just dusty!) and the tea leaves just look like a Rorschach test. While there may not be clear-cut answers, there is some suggestive data.
There exists a collective wisdom (at least within the auction community) that when the stock markets go south, those with money tend to move into “hard-goods,” i.e., fine art, collectible cars, etc. It was with this notion in mind that I caught a sudden chill when I read in the November 9th business section of the Los Angeles Times that shares of Sotheby’s had taken their biggest one-day hit (down from $50.07 to $35.84), as a result of a very poor sale of significant Impressionist art. The sale in question included works by Van Gogh and Georges Braque that failed to sell for their $20–$35 million catalog estimates. I suppose this is the art world’s equivalent of having a 250 GTO not sell for lack of interest.
The article went on to quote Bank of America Securities analyst Dana Cohen as saying, “The sale’s lackluster performance suggests that key fears related to sub-prime/credit/housing issues may be playing out in the U.S.” Since Impressionist art has stood for some time as a bellwether for the fine art market, the Sotheby’s sale raised some unpleasant questions as to whether this trend could be reflected in the collector car world. If it has, we the collectors don’t seem to have realized it yet!
As recently as the last week of October, RM Auctions launched its first UK-based sale, with an interesting collection of cars from several collections including Bernie Ecclestone and Abba Kogan’s. The results were fairly stunning with a total of $38 million in sales and a record $8.25 million for Ecclestone’s Mercedes Benz 540K Special Roadster (see full report on page 16). Looking just a month prior, Bonhams had a solid Goodwood Revival sale in September fetching £3 million with 80% of the lots selling, while the Monterey weekend in late August broke all records with a whopping $134 million in sales (up 30% over the previous year), garnered from six separate auctions. If this is a skittish market, I’d be very afraid to see a strong one.
However, auction results only paint part of the picture. I also wanted to get a handle on the current status of the private sale market, as well. As such, I spoke with Malcolm Welford, a principal with Morris & Welford and a former leading light at Christie’s. According to Welford, private sales also appear to be ticking over strongly and show no indication that they are either slowing down or softening. Welford went on to say that historically significant cars continue to be in high demand and usually remain so, whether or not the markets at large are up or down.
So why is it that the collector car market is holding strong, while other luxury items, like fine art, look to be faltering? The key may lie in the great collector car crash of the late ’80’s. Prices back then were artificially bloated due to nonenthusiasts speculating on the investment potential of classic cars. In those bad ol’ days, many bought, not because they coveted the cars, but because they thought that there was money to be made in flipping them. Since those speculators had their collective clocks cleaned, the market seems to have been repopulated by real enthusiasts who are buying with passion first, and then letting the financial chips fall where they may.
So while all the leading indicators seem to look very good for the collector car market in the coming year, I have to confess to one niggling concern. On the whole, car values seem to me to be growing steadily in double-digit numbers, which obviously is greater than either the rate of inflation or, in some cases, a traditional financial instrument’s rate of return. It seems that it would be impossible for the market to continue to grow indefinitely at this rate unabated, without (1) a correction or (2) an influx of speculators. Let’s hope the market continues to show strength…just not too much strength!