Recommended.co.nz | Guide2.co.nz | Voxy.co.nz | Gimme.co.nz
Homepage | login or create an account

Are Classic Cars A Poor Investment?

Contributor:
Mary Holm
Mary Holm

Question:

Classic cars are a very poor investment. With the current economic turmoil, people are looking for safer investments, and some are buying up classic cars in the hope that these vehicles will gain in value. My advice is: don't.

There's a widely held myth that classic cars never lose value and often increase in price. This is basically crap. People who invested in classic cars before the 1987 stock market crash generally lost heavily on the deal. In some cases their vehicles lost three-quarters of their value.

The Wall Street Journal recently reported a severe drop in the price of low to mid-range classic cars, as the owners were forced to unload them in the face of economic downturn.

Even upmarket marques like Ferraris are not immune. These cars tend to be bought during good times by people who have grown rich due to speculation on property or shares. When these investments drop in value, rich people suddenly aren't rich any more so they end up having to auction off their cars for far less than they paid for them.

For example, a 2005 Ferrari 612 Scaglietti, with only 1000km on the odometer, recently sold at Turners Car Auctions for just $255,500, something of bargain considering it sold four years ago for $640,000.
The really rare classics are still reaching record prices because buyers see them as a hedge against economic recession. As long as there are more buyers than sellers for the really rare models, the high prices will continue.

However, if past experience is anything to go by, the current market will quickly turn around, when the sellers begin to outnumber the buyers.

There will always be a few really rich classic car owners who can afford to wait for the recession to end, but there will be many more who are forced to unload their investments prematurely, at a loss. This will signal to the market that the boom is over, which will lower the value of all similar classic cars.

Houses have an intrinsic value simply because people need somewhere to live. Expensive classic cars have no intrinsic value, even as transport, because they're rarely driven - they're essentially expensive works of art. Classic cars have value only because people believe them to have value. As soon as this perception shifts, the asset can quickly become a liability.

For many less wealthy classic car enthusiasts, such as myself, their car is a part of their family. However, most owners will privately admit that they've spent far more on their classic than they could ever hope to get back by selling it. If you take a classic wreck and fully restore it, you can expect to recover between one quarter and one third of the money you spent on it, not including a few thousand hours of your own labour.

I've been restoring classic cars for over 20 years, and my general advice is that people should buy them because they love them, not because they want to make money from them.

Answer:

Mary Holm: Well there we have it, from one who knows. Thanks for your letter.

Interesting to read about how problems arise when people are forced to sell. It's the same old story as with shares, property or any other investment. A basic rule is: don't put yourself in a position in which you might have to sell. That's when the big losses happen.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.     

About guide2.co.nz : money

Find the latest money news and 'how to' guides on Guide2Money.

Ask our researchers your personal finance questions.

Your Questions. Independent Answers.