25 June 2016

Collectors, fasten your seatbelts

Britain’s stunning vote to exit the EU (about 51.9 percent to 48.1 percent) sent global financial markets into a tailspin on Friday. Britain’s leading equities index, the FTSE 100 was down sharply as was every other European index along with the major U.S. indices too. The pound sterling dropped to its lowest level in thirty years. Dire predictions for the European and global economy abound.

At least in the short-term, some pain from the separation seems unavoidable, particularly if the British economy, which is the world’s fifth largest, suffers dramatically. So what does it all mean for the collector car world? Likely a somewhat bumpy ride.

The very top of the market has been notably quiet of late. The Hagerty Blue Chip Index has leveled off after years of torrid growth. Some attributed it to demand at the top meeting current supply. Others sensed an attitude of extreme caution, as if the smartest of the smart money was waiting for some other shoe to drop.

Whether it was the result of the U.S. election, recession fears or this, the so-called Brexit, something had the top of the market spooked. The polls showed a leave vote was a distinct possibility. Yet this was an outcome that even the odds makers thought wouldn’t happen. Credible evidence of dire economic consequences, and a belief in the ultimate common sense of the British voter convinced most that ‘remain’ would carry the day. So much for that. The New Yorker yesterday called it “proof that Americans aren’t dumber than Britons after all.”

By mid-2015, the influx of European money into the collector car market had slowed to a trickle. For the most part, U.S. and UK buyers were the only ones continuing to spend. Now it seems a virtual certainty that UK buyers will take a breather while the full ramifications of the Brexit sort themselves out.

The result will almost certainly be a quieter collector car market in the second half of 2016, and likely the most anticipated/dreaded Monterey in quite some time. Best case scenario: The dire predictions of economic calamity turn out to be overblown and the market simply continues the modest cooling trend started about a year and a half ago. Worst case: Britain’s decision creates a home-grown recession that infects the global economy and sparks further disintegration of the EU. Now, uncertainty rules and we could begin seeing widespread corrections in the market, regardless of niche.

So what’s an ordinary collector to do? The most important step is not to panic. If you own one or two cars, which you purchased for fun, any market correction should be irrelevant to you. And if the collector car market does deflate for a time, then treat this as a buying opportunity. Frankly, many frustrated, priced-out-of-the-market collectors have been hoping for just such an event.

Best bets? Draw up a shopping list of cars that will have a quick rebound from a correction. Maybe some of the cars that have only recently just climbed out of reach – the cars that went from $25,000 to $40,000 to $50,000 in the last few years – will soon be accessible again, such as Alfa Romeo 1750 and 2000 GTVs, Series II Jaguar E-type coupes, Porsche 911 SCs and Carreras and even Ferrari 308s.

In 2010, during the Great Recession, I bought a 1967 E-type coupe for $32,000. Just three summers ago, I nearly bought a nice, but in need of a belt service, 1981 Ferrari 308 GTSi for just $24,000. I passed and waited a year later and bought a nicer 1983 308 QV for $44,000. In 2012, I grabbed a very nice California Porsche 911SC coupe for just $13,000. Those numbers might not return again, but it is possible that we could see some of these cars back in the ordinary hobbyists’ price range. The mood in Monterey will point the way.

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