The following is an edited excerpt from Drop Throttle Oversteer: Collecting & Investing in Classic Cars, by Jason Paynter, host of the Classic Car Corner podcast!
On the heels of last week’s post from Sam Ramazani about legacy and generational wealth , this week’s post tackles the question, “are classic cars an investment or just a collector’s item?”
Collecting Vs Investing
Once you decide to start your car collection you have a choice to make; are you collecting or are you investing? This is actually a trick question. You can’t invest in classic cars or collectibles. Investing is done for cash flow, and unless you plan to make a business renting out your classic cars (a topic for another book), they are going to cost money to keep up. Collectibles, like cars, Persian rugs, whiskey and wine, paintings, gemstones, gold and classic cars don’t have cash flows in the present or the future. You can speculate on their future price appreciation but they don’t pay you so they aren’t an investment. You can hold them with a long time horizon for selling, but again, that’s just long term speculation. Their value is determined only by what someone else will pay. This means to make money the price has to go up, and that, by definition, is a speculation.
You will find people who argue the classic car market has outperformed things like collectible coins in the past decade and even done better than the S&P. That might be true, and in fact the HAGI (Historic Automobile Group International, a group following this market)1 shows remarkable performance with its top index (which includes cars from Bugatti, Porsche, Alfa Romeo and others). As global wealth has increased, more and more people can buy collectible cars.
Defining an Asset – Appreciation, Depreciation and Cash Flow
That’s all fine and good, but these are still cars, and cars are depreciating assets without cash flow. Regardless of age, a car is only going to appreciate in value if you’re able to routinely maintain it and there’s sustained interest from buyers supporting a market for it. This is critical. An old used up car isn’t going to gain value just because it’s old. You, as it’s owner (and I would say more accurately, caretaker), are going to add value by preserving the car and its original integrity. It’s the same as your home.
Am I saying you can’t make money on classic cars? Absolutely not. I’ve found some truly incredible deals and profited from many of the cars I’ve bought and sold, sometimes seeing returns of 100%. In fact, speculation is a big part of the fun of this. It’s something I’ve done and will continue to do with classic cars. But there is an important distinction and speculation is not the same as collecting. Knowing the difference will save you a lot of grief. That being said, I don’t really know of any collector who doesn’t have his eye on the dollars. So much of this is about the excitement of discovering a barn find jewel. Now you not only have a one of a kind, but also something with a nice big dollar amount attached to it.
Classic Cars Can Be Both
In fact, there’s so much overlap, with nearly every purchase you’re both collecting and speculating. This is great fun and is exciting, especially if you know what you’re doing. As you learn more, you’ll buy what you like for your collection and sometimes you’ll see a real bargain. When you do, you’ll have the knowledge and confidence to make a profit based on your understanding of that car’s market. Nothing wrong with this, it’s how all markets work and it’s some of the thrill of being into classic cars.