With the U.S. dollar poised to strengthen, look for deals across the Atlantic
For a long while now, U.S.-based collectors buying cars from the UK and Europe have paid a penalty simply because of the dollar’s relatively weak exchange rate. We’re approaching a window of opportunity, however, where buying overseas may get you a deal. But it won’t last forever.
An August 2017 report by Audit Analytics cited in the Wall Street Journal estimates there is $2.6 billion held outside the U.S. by the companies in the Russell 1000 index, an indicator that represents the top companies by market capitalization. These aren’t productive investments in operating assets and working capital; they are cash and liquid short-term investments representing profits earned in the world economy that have been parked offshore to defer taxation at uncompetitive U.S. corporate rates. Apple alone has over a quarter-billion dollars in cash locked up outside the U.S.
A vast quantity of U.S. dollars also lubricates international trade and investment. Demand for dollars continues to grow, not least while the European Central Bank holds interest rates in the EU to negative returns while the U.S. Federal Reserve slowly increases interest rates in the U.S.
The upcoming revision in the U.S. tax code will lower business tax rates and provide an even lower tax rate for repatriation to the U.S. of already-earned profits held overseas. While the repatriation windows in both the House and Senate versions of the tax act are relatively long, for many companies, substantially all the cash on their balance sheets is held overseas and even a short-term trickle will have an effect. And in this case a “trickle” is measured in hundreds of millions, if not billions, of dollars.
If the resulting demand for liquid dollars is significant, and by all accounts it will be, it will raise the U.S. dollar’s value in the short term. Most analysts predict this rise will have a duration of no more than the first two quarters of 2018, but that’s a spurt ideally timed to make cars in early 2018 UK and European auctions—and in UK and EU dealers’ inventories—more affordable to U.S. dollar-based collectors.
An example: Suppose the alloy-bodied competition Mercedes-Benz 300SL roadster in the Bonhams auction at the Grand Palais in Paris on February 8 is irresistible. After all, it’s a rare, fast, distinctive car with a gorgeous four-spoke wooden steering wheel just begging to be grabbed. It’s an acquisition that might easily be worth a million dollars to the right buyer. The trouble is, it’s estimated at €900,000–€1,200,000, and getting to €900,000 today takes about $1,080,000.
A mid-estimate price of €1 million today would cost a U.S. buyer paying with U.S. dollars roughly $1,200,000 (before the buyer’s commission.) But if the euro backs off to parity due to sudden short-term demand for cash to repatriate profits locked up overseas, that same buyer pays $1 million and keeps $200,000 in the bank.
That’s enough left over to buy the 1965 Porsche 911 (estimate €150,000–€200,000) and put it in the same shipping container for the trip home across the Atlantic. Not a bad two-fer, in other words.
The international finance system will adjust itself soon enough to account for this imbalance, and the window will close. But the short-term opportunity for car buyers looking for an overseas deal is real, so start bookmarking those catalogs.