Are Classic Cars a Good Investment?
In an increasingly uncertain economic and geopolitical era, investors may look beyond traditional financial markets to diversify their investments, seeking growth opportunities across alternative asset classes such as art, fine wine, and classic cars. Whilst such investments are not as accessible to the average investor for reasons including price and liquidity, classic cars have long been a popular place to park capital for collectors and enthusiasts alike. Beyond being mere vehicles, classic cars are seen as tangible assets with potential for appreciation, offering both financial rewards and sentimentality to investors. Like any investment, they come with benefits as well as drawbacks.
The obvious financial benefit from owning a classic car is its rarity and therefore its perceived value. Because particular models of classic cars are scarce, with production having ceased decades ago for the most part, they tend to hold their value well and steadily appreciate over time. For example, the Jaguar E-Type, which began production in 1961, had an average value of approximately £45,000 in 2000. By the end of 2023, this had risen to the £140,000 range, an appreciation of over 200%. Compare this to the FTSE 100 over this time, which rose only 24% over this period. Whilst this is an attractive return, the rarer the car, the higher the potential return it can achieve for its owner. In 2022, the 1955 Mercedes-Benz 300 SLR Uhlenhaut Coupe sold at auction in Stuttgart for €135m. Whilst this is an extreme case, it demonstrates the returns that classic and rare cars can offer.
Classic cars can also provide diversification to an investment portfolio. By allocating a portion of funds to tangible assets such as classic cars, investors can hedge against market volatility in more traditional asset classes such as equites, bonds and property, whilst also reducing correlation. Along with classic cars, investing in art, fine wine, whisky, and even rare coins and stamps can yield healthy and uncorrelated return for investors.
In addition to the return potential and diversification benefits of investing in classic cars, they also offer non-financial benefits to owners. As classic cars are a tangible asset, owners can derive enjoyment from driving, restoring and showcasing their vehicles. Many people become investors in the asset class after initially being enthusiasts and hobbyists, and therefore are able to combine their passion with investing.
There are of course drawbacks to investing in classic cars, including the high initial investment, illiquidity of the market, potential volatility, valuation, maintenance and storage costs. Acquiring classic cars often requires a substantial upfront investment, with rare models command six or seven-figure sums, which makes them inaccessible to all but the wealthiest investors. Whilst the aforementioned Mercedes-Benz was clearly the most extreme case, more accessible models from manufacturers such as BMW, Ford and Jaguar can still cost tens of thousands of pounds. This makes investment a lot less accessible than the equity or bond market for example, where investors can begin with much more modest sums of capital.
Illiquidity is perhaps the biggest concern for investors in classic cars. Unlike stocks or bonds, which can be easily bought and sold on public markets, classic cars are illiquid assets. Finding a buyer willing to pay the desired price can take time, making it challenging to quickly liquidate investments for fair value. If an owner needs to liquidate the asset quickly, they may have to do so at a substantial discount. This illiquidity, owing to the relatively small number of buyers in the classic car market, can cause price volatility. Because there are often only a small number of each classic car model, they do not tend to exchange hands very frequently. Therefore, as price can change significantly between these, sometimes lengthy, periods for a variety of reasons including consumer preferences and the state of the economy, price volatility can be high. Illiquidity can also make classic cars difficult to value. Because they are not traded frequently, there is no continuously changing price to act as a benchmark, as is the case in public equity and bond markets.
Owning classic cars entails ongoing maintenance and storage costs. Restoring and preserving can be expensive, requiring specialised knowledge and skills. Furthermore, sourcing parts and components for restoration andrepairs can be difficult, since manufacturers do not always cater for models if production ceased decades ago. Investors must also weigh the price of storage and insurance, with the latter being potentially very costly depending on the rarity for the car.
Investing in classic cars can be a rewarding endeavour for enthusiasts and investors. Beyond the potential for financial gains, classic cars offer sentimental value. However, considering the high initial costs, illiquidity of the market and ongoing maintenance expenses, classic cars also pose risks unique risks which should be thoroughly understood by investors before moving into the space.
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