Cars: a classic investment

Collectable cars are a two-for-one deal: they’re a solid long-term investment and a source of everyday joy.

“They appreciate in value and you have the pleasure of driving your investment, which you can’t do with a GIC,” says Montreal-based Howard Cohen, general manager of John Scotti Classic Cars. “A lot of people buy them for nostalgia; their father had that car or they went to their graduation ceremony in that car.”

But don’t let the fog of nostalgia cloud your judgment. Car collecting takes time, research and patience, says Craig Jackson, chairman and CEO of Barrett-Jackson, a U.S.-based automobiles auction house. Rarity, original components, and a celebrity connection are three factors that drive the highest prices in collectable cars.

Cars that were expensive when new are inherently rare and most in demand. Rare pre-Second World War classics such as the Duesenberg and the Isotta Fraschini, or international brands, such as Mercedes-Benz and Ferrari, are good investments because they appeal to a larger market.

“Owning a car [that has] style and a celebrity connection is something that resonates with collectors all over the world,” says Jackson. At Barrett-Jackson’s 2014 Scottsdale auction, a two-door 2008 Bugatti Veyron owned by ex-American Idol host Simon Cowell sold for US$1.375 million.

And a car with its original components will sell for more than one with newer or refurbished parts swapped in, so it’s important that serial numbers on major components match.

“The motor and the transmission serial numbers are the same on muscle cars, but one is stamped on the motor; the other on the transmission,” says Cohen. “Some cars have the original motor, but often the transmission has been replaced so it no longer matches.”

Certain models will appeal to different demographics. Typically, younger buyers opt for sportier models, while older buyers go for classics. But all ages clamor for convertibles as they’re rarer than hardtop models.

Regardless of make and model, “The longer you keep them, the better investment they are,” says Cohen. In a good market a classic car can gain 5% a year, up to as much as 33%.

In certain ways, cars are considered an even better investment than real estate, since vehicles can be transported to areas where demand is strongest. (Try moving a plot of land.)

Still, there are risks. For one, the market is closely tied to economic cycles. “Guys who can’t pay their mortgages are selling their cars, because you can’t live in the car,” says Cohen. And when markets get flooded, prices tumble.

Further hampering a sale, cash-poor Canadian buyers won’t be able to capitalize on a buyer’s market since banks won’t extend loans for older vehicles. Owners will also have to account for storage costs and high insurance premiums.

“A person shouldn’t have any more than 10% to 15% of his net worth tied up in an old car,” says Dan Warrener, a classic cars specialist with RM Auctions.

At the end of the day, classic cars are an investment to be enjoyed for their beauty as much as their long-term gain. Just be extra cautious of denting your savings when you take your investment out for a spin.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.