Investing in shares of collector cars: Stupid or savvy?
On a quiet side street in the SoHo neighborhood of New York, in the window of an upscale shop next door to a parking lot and across the street from a fire station, the gleam of a metallic rosso 1980 Lamborghini Countach Turbo grabs the attention of jaded New Yorkers who’ve seen it all.
The car, one of just two built by a Swiss Lamborghini distributor, literally brings people to a stop. They cup their hands to their faces and peer through the window at a car that, nearly 40 years later, remains an automotive icon. Some try the door to see if the shop is open. More than a few snap pictures at a car they think they’d never own.
Except with Rally Rd., they could.
The Lamborghini is one of a small fleet of amazing cars offered for sale through an app-based investment platform that lets anyone invest in cars typically available only to the rich. Think of it as a stock market for collector cars. Chris Bruno founded Rally Rd. as a startup with his childhood friends Rob Petrozzo and Max Niederste-Osthold about 18 months ago. “We wanted to democratize the process of collecting classic cars,” he says. “This way, anyone can participate.”
The trio had other lives before becoming fractional automobile ownership impresarios. Bruno worked in venture capital, both as an investor and a funder; Niederste-Osthold was an investment banker at Barclays; and Petrozzo was a product designer who started with music labels and shifted to user experience design. Naturally, he’s the man behind Rally Rd.’s slick-looking app.
Making the idea work required putting together a stable of cars that were likely to appreciate. To do that, Rally Rd. lured collector car expert Jake Auerbach away from auction house RM Sotheby’s. He’s helped the startup amass a collection of nearly 30 cars, each of them numbers-matching, original color cars with no major gaps in provenance. Rarity and originality are key points in the selection process, and restorations have to be well documented. “We turn down a huge number of cars,” he says.
So far, the fleet includes a 1991 Mitsubishi 3000GT VR4 with just 2200 miles on the clock, a 1988 BMW M3 that hasn’t cracked 10,000 miles yet, and a 1992 Lancia Delta Integrale Evo Martini 5. Auerbach recently lined up an all-original 1963 Chevrolet Corvette and a purple 1994 Lamborghini Diablo SE30 Jota. Rally Rd. hopes to have as many as 100 cars in the portfolio within the next year and intends to open a shop in Brooklyn to display them.
Anyone investing in a collector car wants meticulous documentation so they’re assured of the vehicle’s provenance and condition, but Rally Rd. has the added burden of pleasing the Securities and Exchange Commission because the cars are offered on a public exchange. Each car is listed in a process not unlike an initial public offering of stock: the car is given an opening value, listed, and investors buy shares which are then locked down for 90 days. How quickly those shares sell and the car fully funded depends upon the car, share prices, and market conditions. Some, like the Acura NSX and the low cost-per-share 7Up Edition Mustang in the collection, are fully funded within 10 minutes. Others, like the Lancia, which is a pretty niche car, can take several weeks.
Before investors begin clicking “buy,” Rally Rd. figures out the value of the car for the initial offering—usually with the help of a third-party appraiser, but sometimes by dint of recent auction results and other market factors. Then, the car’s value is divided into between 2000 and 5000 shares to make them affordable to people who actually work for a living (one of the early cars on the platform, an original 1955 Porsche Speedster, had share prices of over $200, and took a while to fund). All the shares are common shares, and the company’s principals buy between 2 and 10 percent of the shares in each car. “We co-invest with everybody in every single car,” Bruno says. “We’re putting our own dollars behind every car on the platform.”
Every one of the 5000 shares in that red Lamborghini, which Rally Rd. offered for $635,000, sold in a week. The Mitsubishi, offered for $38,000, went for $19 a share, while the M3 was appraised at $141,000 and brought $47 per share.
Enthusiasts, take note: these cars are investments, and are treated as such. They’re garage queens, not road warriors. A mechanic fires them up from time to time and takes them around the parking lot outside the warehouse where they’re kept, running them just long enough to bring everything up to temperature, run them through the gears, and give the brakes a workout.
Rally Rd. remains focused on building its portfolio and so far hasn’t sold—or, as Bruno puts it, “liquidated”—any of the cars. The startup has periodically opened trading windows to allow investors to buy or sell stocks in the cars, and most of the cars have traded up since the initial offering. The ‘77 Lotus Esprit gained 15 percent and the 7Up Mustang 20 percent, although a 2006 Ferrari F430 lost 2 percent. Bruno says the startup is developing a system that would one day allow investors to make offers to purchase investment cars outright. Any sale, however, would be dependent upon shareholder and advisory board approval, market conditions, and so forth.
So what do people think about the concept of fractional classic car ownership? “When you look at Rally Rd. strictly in investment terms, there are probably better ways to make money,” Brian Rabold, Hagerty’s vice president of valuation services, says. “But it really democratizes the opportunity to invest in cars. You don’t need to be able to pay $60,000 to buy a car; you can get in for $60.”
One obvious drawback, he says, is the lack of physical ownership—a sentiment echoed by many in the enthusiast community.
“The coolest thing about these cars as investments is that you have a tangible thing you can take out and show and enjoy and meet people with,” he says. “The downside of this fractional ownership model is that you miss out on the best parts of the ownership aspect.”
The idea, nevertheless, appears to be catching on. Just last month, the Texas collector car outfit Motostalgia changed its name to BlueChipCar and announced plans to begin selling shares in classic cars.
Since it launched, Rally Rd. has brought in $10 million in venture capital, including some from the rapper Nas. Not a bad start for Bruno, a guy who launched the startup to give others an investment opportunity he himself missed out on a decade ago when everyone told him to invest in a vacation home instead of the 1994 Porsche 3.6 Turbo or 1962 Ferrari 250 GT Pininfarina cabriolet had his eye on.
“Both of those cars at that time were the exact value of the down payment on the house,” he says. “Ten years later, look at the values. The house paid for it self and cash flowed in and out, and it’s worth a little bit more than it was back then. But that Turbo 3.6 is worth upwards of $1 million now. The Ferrari is worth more than $1.5 million.”
Bruno isn’t bummed about the money he didn’t make. What irks him is that he blew a chance to invest in something he loves, something he’s passionate about. He’s not making that mistake again, and doesn’t want other auto enthusiasts to, either.