One of the best-performing alternative assets, classic cars can help you combine investment and the thrill of owning a piece of automotive history. But, as Danny Cobbs warns, make sure you don"t buy a clunker
There is something quite ridiculously romantic about classic cars - it"s not uncommon to find enthusiasts getting very dewy-eyed when fawning over the curves of a 1970 Fiat Dino Spyder, the fine lines of a Lamborghini Countach, or the attention to detail given to interior of a Rolls-Royce Phantom VI. And the turnout at classic car rallies and exhibitions the world over is proof of the fact that this is an enduring passion that"s being passed from one generation to the next.
For many, the aesthetics, the history and the driving experience remain all that matters. But for others, classic cars are becoming much more of a commodity - an alternative asset class. This isn"t surprising when you consider that the Coutts Index showed classic cars rising by 257 per cent between January 2005 and June 2013 - a much bigger return that you"d have received on the stock markets.
Predicting the classic car market, however, is not an exact science, and like any market it can be volatile - although if certain rules are followed it does limit the risk. Rarity is perhaps the most obvious thing to look out for - it inflates the price of any collectible. Then there is styling - whether a motor encapsulates an era or shows the advancement in automotive technology. And, of course, there"s provenance. These are just some of the factors that can transform a run-of-the-mill car into something a lot more desirable, and ultimately more valuable.
For those who have always dreamt of owning something a little more exclusive, like a Ferrari 250 GTO or Porsche 911 GT1, then the HAGI index is a good place to track prices. It runs a proprietary database of more than 100,000 actual transactions of rare classic cars, sourcing its data from private transactions, dealer transactions, marque experts and auction results. In March 2014, the HAGI Top, the weighted index of the total market for rare classic cars, was up 4.05 per cent year on year. Of course, any car is only worth what someone is prepared to pay for it - let"s not forget, irrespective of marque, it will always be second-hand the moment it"s driven off a forecourt. There are, however, some cars that continue to be universally feted by collectors and investors alike.
Cars of the 1950s and 1960s still tend to lead the classic market, and for good reasons. These are the cars that evoke a bygone age of individuality and stir the emotions to remember the romance of motoring, long before congested motorways and speed cameras. Cars such as the Mercedes Pagoda and Jaguar E-Type were designed, built and engineered by pioneers of their day, who totally understood the needs (and wants) of their target audience. Even today, it"s difficult not to be seduced by the wind-in-the-hair appeal of an Austin Healey 3000 Mark III or the sinuous flowing lines of an Aston Martin DB5.
Start your engine
While many of these classics have priced themselves out of the grasp of many ordinary motorists - expect to pay £70,000 for an early E-Type in top condition - it"s possible to enter the market for just a few grand. And unlike a modern-day car, a well-chosen classic should only rise in value.
But it"s not just the cars that inspired our parents and grandparents to take to the wheel - many cars of the 1970s and 1980s are also achieving prices that far exceed their original cost. “Cars like the Mark I VW Golf GTI and Peugeot 205 GTI are as desirable today as they were when they first came onto the market,” says Keith Adams, Classic Car Editor at honestjohn.com. “Plus, because they have fairly competent mechanics, they can still be driven and enjoyed on a daily basis.”
The big question is, of course: where to buy your classic car? Buying from a specialist does give a certain peace of mind, although a car that"s been in private hands for many years and comes complete with a handsome provenance should also alleviate any mechanical fears. Also, never be afraid to get an independent inspection - after all, you wouldn"t buy a house without obtaining a structural survey first.
Owning and running a classic, though, are two different things. While they may only be driven a handful of times a year, these cars are not in their first flush of youth, and will need to be regularly maintained if they"re to be enjoyed by future generations. Therefore, mechanical and restoration work should be undertaken by a professional or competent amateur, using good-quality parts wherever possible.
Obtaining parts for a 50-year old car isn"t as difficult as it would first seem; spares for the more popular classics can still be bought off the shelf, while scrap yards and the internet are other good sources.
In the UK, classic cars escape capital gains tax as they are deemed "depreciating assets" - even if they rise in value. There is no precise definition of a classic car, but in the UK vehicles built before January 1973 are classed as "historical vehicles" and are exempt from road tax. Also, all vehicles produced before 1960 no longer have to pass an MoT, but must be deemed roadworthy.
In it together
If buying a classic or rare car is more about financial returns rather than passion, then a classic car fund might be a consideration. Today"s classic car funds are totally different from those of the 1980s, which relied heavily on speculation and then crashed unceremoniously when the bubble burst. Now, every classic car fund has to conform to the same stringent compliance as any other managed fund.
The Pink Floyd drummer and auto enthusiast Nick Mason is on the advisory board of IGA Automobile LP, the Guernsey-based investment group with $150 million worth of classic cars, which makes annual returns of 15 per cent. During its first three-year investment period, IGA has acquired a collection of trophy marques with distinguished race or ownership histories, such as the Ferrari 250 GTO, Aston Martin DB4, and Shelby Daytona.
However, there is a word of caution from Dave Selby, Managing Director of ClassicCarPrice.com. “In the world of classic cars, there"s a fine line between a sound investment and an appreciating asset. For example, the cost of keeping any classic roadworthy is, pro-rata, the same for a £5,000 car as it is for one costing £200,000. A 10 per cent growth will easily pay for the annual upkeep on the more expense car but will be swallowed-up by a less-expensive classic.”
So even if you think the real thing is what you are after, you may have to opt for the fund route if upkeep is going to be an issue. And if all this has got you thinking, please, please, please do your homework first before liquidating the kids" university fund to buy the car of your dreams. Knowledge is the key factor when buying a classic car.
Modern-day classics
With my kids making their own way in the world, a classic car seemed the perfect accompaniment to my fully blown mid-life crisis. It had to be sexy (obviously) and reliable - which don"t often go hand-in-hand when choosing a classic - and within my £10,000 budget. I knew exactly which car could deliver on all these points - a Mercedes convertible.
So two years ago I started looking for "my perfect car" - the SL R107 - often dubbed the "Bobby Ewing Merc". And because it had a long production history - 1972 until 1989 - there were plenty of good examples around, with later models being advertised for as little as £3,000, which left a wad of cash in the pot for any unforeseen repairs.
The problem was I wasn"t the only one who saw this Merc as a forgotten classic. In the past 12 months alone, prices have rocketed and now easily reach five figures. Suffice to say, having procrastinated for too long, I"ve been priced out of the market.
But if predictions are to be believed, there are plenty of cars set to become modern-day classics. Here"s my top five:
Mazda MX-5: It"s been around for over 25 years, and it single-handily reinvigorated the market for roadsters. Thanks to the sheer number of survivors, prices are ridiculously cheap but the quarter-century hype should generate significant classic interest to see those prices start to increase.
Jaguar XJR: Having seen the bottom fall out of its second-hand value, this supercharged six-cylinder Jaguar is now starting to be appreciated for its design, power and luxury.
Toyota MR2: First launched in 1984, the mid-engined MR2 was one of the most desirable sports cars of its age. Early models are still relatively cheap to buy, but 2014 marks its 30th birthday, which could affect prices.
Honda NSX: Even though the NSX"s prices have been rising steadily, they"re still believed to be undervalued. It was the first supercar to emerge from Japan and had one of the best engines of its day.
Audi RS2 Avant: Not an obvious choice, but being a joint venture with Porsche makes it a very interesting car. It was also famously timed achieving 0-30mph in a mere 1.5 seconds, which was quicker than a McLaren F1.