Buy with your heart, as well as your head
Instead of lining bankers' pockets, put your cash into something you can love, says Chris Dearden
Wednesday 23 February 2011
The 0.05 per cent my bank is offering for the privilege of looking after my very modest fortune seems pretty typical of the system's generosity to anybody not in their employ. It probably also explains my general reluctance to entrust my life savings to them right now. That other traditional safe haven for spare cash, bricks and mortar, seems even less attractive at the moment. So perhaps it's not surprising that investors worldwide are looking for somewhere, or something, that will give them a safe and reliable rate of return on their money, and are wondering if classic cars could provide the answer.
Wait a minute. Haven't we been here before? Many of us still remember the classic car boom of the Eighties and Nineties, where anything that could reasonably be called a classic, and much that frankly couldn't, would have briefcases full of cash thrown at it. That boom saw the values of some fashionable cars double each month, and fortunes were paid for cars of dubious quality and even more dubious provenance. This kind of boom has only one ending. Sure enough, speculators who had seen the cars akin to shares on wheels unloaded them unceremoniously when the market began to turn, and the speed of drop in values made the earlier rises look pedestrian. Many investors lost everything.
One member of the British aristocracy who had built up a collection of hugely desirable Ferraris decided that his financial situation simply couldn't stand the overnight slashing to the value of his investment, so he came up with a novel solution. He cut the entire collection into small pieces and dropped them into a very large pit he had dug in the grounds of his estate, claiming on his insurance at the original inflated values. He was given five years in custody to ponder whether he might not have come up with a better plan. Nevertheless, the story illustrates simultaneously both the old maxims that investments can go down as well as up, and that money and good sense don't always go hand in hand.
So what makes us think that things could be different today? For a start, the market is now clinically analysed in a way that we are more used to seeing with currencies or precious metals. In 2008, two former bankers set up Historic Automobile Group International (HAGI) with the sole aim of providing a rigorous independent index of classic car prices. The HAGI index for 2010 shows an increase of 7 per cent on a basket taken from all classic cars, and the increase in the HAGI Ferrari index for 2010 was more than 9 per cent. These are solid, respectable figures, unlike the dramatic amounts of the Eighties.
Another sign that classics are respectable again could be found in the announcement this month of the IGA Automobile Fund, which aims to launch in April with the intention of trading in the world's most desirable and iconic collectors' cars. Fronted by some respected names including McLaren designer Gordon Murray and Pink Floyd drummer and car collector Nick Mason, the fund has a list of 25 cars it plans to target, including the Ferrari 250 GTO and Aston Martin DB4 Zagato. While the fund is aimed at wealthy investors with a minimum stake of $500,000 (£333,000), some large financial institutions are also having a close look, presumably based on some hard-nosed investment criteria. The fund aims to make a return of 15 per cent a year, and as a bonus, investors will be able to participate in regular events that use the fund's stock. Not that I can see them lending out the Zagato for a weekend.
As a purely financial investment, with a touch of added excitement from the commodity in question, this could really make sense. But I can't help thinking that it misses the point of investing in classic cars – buying with both your head and heart. Something from which you will get the intense pleasure that comes with ownership and which, if you are lucky and have bought well, might make you a profit later on.
Maybe Chris Evans had this in mind when he paid £12 million for his Ferrari 250 GTO. He is very much a head-and-heart investor, buying shrewdly but only what he loves. You might assume such speculation in classic cars is the preserve of the financially well-heeled. At the top end of the market it is, but a recent US survey discovered that of the 25 classic cars with the greatest appreciation in value over the year, 16 were valued at under $10,000 (£6,600). A sum of money that might be languishing in a savings account could instead be buying a top 25 appreciating classic car.
Now if that thought has got you reaching for your cheque book and the small ads in Classic Cars, there are some golden rules to remember. First, decide on the car you want, then buy the best example of it that you can find. Unless you are looking for a DIY restoration project, look for something where all the work has already been done, particularly on the bodywork, which is labour intensive and therefore expensive. Second, make sure you are actually buying what you think you are buying. Anybody who thinks forgery is restricted to banknotes and fine art should note that even though only 33 Ferrari 250 TRs were originally built, there are 46 hotly disputed examples in circulation today.
The only factor in common with the top three best buy cars is that good returns can probably be made on all of them if the right example can be found. In third place is the beautifully brutal TVR Griffith, with supercar performance for £10,000 upwards. Check the chassis carefully, buy the youngest five-litre model you can afford and never drive it in the wet, unless you're very brave. Second is the more gentle Triumph Roadster. Where else could you get a nice example of Forties style and a dickey seat for £15,000? But in pole position is a foray into Italian exotica, the Ferrari Mondial convertible. A 1980s two-plus-two V8 convertible for under £20,000? Sounds unlikely, but one is currently for sale in Yorkshire that has just been reduced to £10,000. It well illustrates the point that the best gains are found in cars other buyers don't currently want, but probably soon will.
If you decide to take the plunge with a classic car, whatever happens you can be satisfied knowing the money you liberated from your savings account to buy it won't be used to bolster yet another banker's bonus.
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