IS THE 5-YEAR LOW ON THE HAGI INDEX A REASON TO BE FEARFUL?
I think not, markets [even cars] move in cycles of on average 4 to 6 years. The start of the last cycle can be traced back to August 2009 when you could have picked up a good low-mileage Ferrari F50 for around £400k. Today the same car will set you back around £2m, evidence the top of the market remains robust, away from the casual observer.
The major classic car indexes recorded their peaks during the auctions of Q3/Q4 2015, since then, cumulatively prices have been easing. The differentiator is good cars are falling in value, but great cars have decoupled, increasing in both demand and value. Rising prices over the last few years has brought a number of “average” cars to the market, non-matching, etc. which are then being sold at completely new auctions. This nouveaux lack of experience and quality is obscuring the data downwards as true collectors/investors are simply “passing” patiently awaiting superior metal.
Publicized sales such as the 993 GT2 which RM sold for £1.8m in late 2016 only serves to compound the issue as average cars hit auctions with increasing low reserves – which then don’t sell lowering average sell-through rates exacerbating concern and leading to whispers of bursting bubbles. It’s also worth bearing in mind we have seen recent weakness in other luxury goods asset classes such as London real estate and fine art to list a couple of examples.
Collectively the data points suggest middle of the road collectable cars will continue to underperform for the next 12 to 18 months or at least until “value” is once again perceived in them; but as always best-in-class most sought after models will always attract premiums. The top end of the market will continue to outperform quietly under the radar.
2017 will be remembered much like 2009, a buyers’ year. As evidenced in Monterey, California back in August and in Maranello, Italy during September, WMG’s Hawken believes we are already seeing signs of solid market stabilization. The welcome return of educated buyers/investors choosing the right cars for the right reasons was met simultaneously with cheap-suited “loads a‘money” speculators leaving the market. Sell-through rates over 85% returned and not in isolation; Ferrari’s Maranello sale saw 92.5% but still a little off the peaks of 2015. €8.3m was paid for a LaFerrari Aperta (albeit with a charity premium), so the mood is definitely more upbeat into the closing quarter of 2017, and predictably beyond. Expensive high-profile cars such as the Aston Martin DBR1, Porsche 917k and McLaren F1 sold for around 10% above estimates. That has been met with a selection of ultra-rare cars made in low single digit numbers being offered to WMG as investments albeit at hefty premiums. Evidence owners are feeling bullish about making headline sales again. This time last year the cars were cocooned comfortably in storage.
To conclude, we believe the weakness to be no more than a needed cyclical correction, but sufficient to shake out anything but perfect blue-chip automobiles. We believe we have already seen the lows of this cycle during the mid-point of Q2. But given the c50% correction we saw in the late 1980’s 1990’s, long-memory investors/collectors are understandably cautious of any negative signals. For several regulatory, macro-economic, emerging and market maturation reasons, we believe this kind of catastrophic event is unlikely to happen again.
We believe best-in-class collectable cars will continue to offer defensive out-performance for years to come.
About the author
Richard Hawken manages the WMG Collectable Car Fund in Mayfair, London. The fund was launched under Alternative Investment Fund Manager WMG Advisors LLP in early 2017 and is currently the first and only car fund to be authorized and regulated by the FCA and AIFMD.
More details can be found at www.wmgfunds.com