“Tulip bulbs once sold for more than houses. But not for long.” —pauljnolan1000, Bring a Trailer subscriber
There are some very peculiar price actions occurring within the collector vehicle market. There are similar strange valuations happening in the art market, the wine market, and the real estate market. Prices are surging for collectibles and real assets. Could it be that a decade of loose monetary policy and negative interest rates are finally coming home to roost? Have central banks around the world gone too far? Is the dollar turning into toilet paper? Let’s look at two recent stunning BaT auction outcomes that may well represent a pair of canaries in a coal mine.
Ten years ago the word “trillion” was hardly (if ever) used. Today, the word that represents a thousand billion is a regular part of our lexicon. Trillions now commonly describe the annual deficit of the Federal government or the market capitalization of Tesla. In the case of Apple and Microsoft, their values now stand at multiple trillions. Nowhere has the market froth been on clearer display than within certain Bring a Trailer auction outcomes. Two recent auction results for a pair of very unremarkable collector cars are further evidence that we are living in the midst of a full blown mania.
The first recent auction outcome in question is that of a purple Porsche 968. The 968 shares its lineage all the way back to the anemic Porsche-VW 924 of the 1970s. This 1992 968 had 8,000 miles and “rare” cloth interior. Allegedly, this is the only 968 painted in purple—thank god. This car shattered all 968 records and was a total outlier. What we have here is a modestly used four-cylinder 968 with cloth seats for an astounding $164,000? Really?
Our subject car shatters all BaT 968 records!
Our next subject car is a slightly more interesting model—a 1989 Ferrari 328 GTB. This is one of only 33 GTB’s that made it to the United States in 1989—the final and best year of 328 production. Finished in attractive Nero over black, this 9,700 mile example was nice—but certainly not $320,000 nice! Despite the fact that the 1989 models are arguably the pinnacle of the 308/328 model, the 328 will never be considered a truly special Ferrari by discerning collectors. So what we have here is a car that checks a lot of boxes: Its black. Its a final year 1989 car. Its equipped with the more desirable fixed roof GTB option. These three points certainly help justify a higher than normal price for this particular 328. However, the final outcome still makes no sense: The only way to justify a $320,000 328 Ferrari is if there were a few dozen gold bars stashed in the tiny front trunk.
This $320,000 Ferrari 328 outcome is as spectacularly strange as the $164,000 purple 968!
What is going on here with these two outlier auction outcomes? Sure, some really high valuations have recently occurred with cars that had ultra-low or even delivery miles. The bull case being that these examples are brand new “in the wrapper” vehicles that can never be recreated. Buyers justify a hefty premium for a twenty or thirty year-old car that has never been driven or used. However, in the case of our 968 and 328 this is certainly not the case—these examples each had 8,000 and 9,700 miles on their respective clocks. We could maybe get closer to these ludicrous valuations if both examples were zero-mile hermetically sealed museum pieces. Alas, both of these vehicles were arguably “used” cars.
We submit that there are greater forces at work here than simply demographics, pent up demand, or the well documented BaT phenomenon. What is pushing unremarkable cars like a purple 968 or a black 329 GTB into the stratosphere? Over a decade of artificially low interest rates and the printing of trillions of dollars has played a significant role in the rise of all asset prices, including certaincollector cars. This doppelgänger auction outcome here represents something that never could have happened ten years ago when interest rates were normal and US government debt stood well below a cool $10 trillion. Today the numbers are silly—and getting sillier. Just look at the market value of Tesla which is now worth more than the majority of the entire automobile industry (see chart 5 below).
Recently, I was asked to speak to the Madison Avenue Sports Car Driving Club & Chowder Society about what is going on with the valuations of collector cars. Below are a set of slides that my firm Hollow Brook Wealth Management produced. Take a moment and study some of the data—it makes a compelling case that we may be in the midst of our own modern-day tulip bulb mania.
Great article and read Phillip. I agree with much of your assessment and believe it is indicative of what’s happening in other sectors as well. As a commercial developer we see much of the same in the real estate market today. Extreme pricing for average real estate.
The dollar is buying less today and the long term affects are yet to play out. The trillions of dollars printed in the last few years have just begun to filter through the financial system. A reckoning is coming and the true impact is yet to be determined.
Hard assets can provide some hedge on inflation but I for one am not a buyer of vehicles in today’s market. I am old enough now to have lived through a few cycles like this before. In the future downturn there will be better buying opportunities.
I also wonder how many of these sales are financed on perceived equity in assets and inflated valuations.
I don’t recall using the word “trillions” until sometime after 2012. I think the TV series Billions if named today would be called Trillions…..
Investment cycles always have these moments when observers cry ‘irrational exuberance,’ but frankly I’m always leery of the impulse to say buyers have suddenly lost their minds. Furthermore, I’m unconvinced that the data / anecdotes you cite support your thesis. Counter arguments off the top of my head might be:
-As you yourself cite, markets have never been more efficient in terms of matching a critical mass of buyers and sellers. BaT of course changes everything, but Mecum and Barrett have ‘popularized’ the once rather opaque and effete auction world. They’ve also reduced transaction costs, both direct and indirect. Given more efficient markets, you might argue prices have never before more accurately represented buyer sentiment.
-The 968 and 328 examples you cite are in a mileage category which sets them apart from ‘used cars,’ despite your disclaimer. I don’t have the data, but I believe I’ve seen a real trend of logarithmic seeming relationship between mileage and price paid. That same 968 with 75K miles would see that price regress instantly to the mean.
-Further to the 968,328 examples, I’m also sensitive to the the propensity of us ‘older guys,’ to marvel at prices paid for cars we don’t consider noteworthy, mostly because they were built long after our car-guy passions were first established in our teens and twenties! Price trends of cars from the fifties and sixties have had a much gentler slope recently than cars of the Radwood era. 300SLs have been pretty static for a decade. And ‘true classics,’ eg Duesenberg, Mercer, Bugatti etc are a screaming bargain, adjusted for inflation. Your analysis in short, simply doesn’t account for fashion.
Everyone always points to the Tulip bubble when prices don’t make sense. Maybe its just my 80’s B school indoctrination in efficient market theory, but my observation is that over time, and across cycles, prices reflect supply and demand.
Brandon, thanks for your comments all of which are reasonable and make sense. Fashion and demographics surely have a huge impact on valuations of collector cars. I guess my point is that the dollar is not buying what it used to and time will tell if this time things might be different. I don’t believe the Fed and the Treasury will get away with the last ten years of monetary experiments (malpractice in my view) without hurting the dollar’s intrinsic value. America’s debt problem is now a full blown national security problem as we will not be able to manage this debt as interest rates rise. In short, the Fed is in a corner and there is no way out—-and they know it. We are already seeing pretty significant inflation although the authorities call it “transitory.” I’d still hold the view that an almost 10,000 mile 328 at $320,000 is not representative of an efficient market, especially given the scatter plot showing how much of an outlier this particular car was to the mean—-the almost identical scatterplot is evident for the purple 968. Either way, prices in general seem way too high for my tastes and these two cars seemed worthy of writing about as they reflect a mania market. This is a sellers market and not a buyers market—-but that is just opinion!
Excellent piece, Philip – and as you know it’s topic close to my heart as someone who has spent decades playing in the “used but fun and /or arguably collectible” car market – and I applaud you for avoiding the word “bubble”. That said, although some of my recent car transactions have been a little silly in terms of cars selling at a modest profit over what I paid, real estate is where this situation is squarely on my radar scree these days. We just sold a 1969 Levitt tract house for 2.58 times what we paid for it in 2002, 10% over an already ludicrous asking price, and with no contingencies at all and multiple bids all with escalation clauses. It seems to me that the parallels are front and center with the car world and the buying and selling of cars, thanks to venues like BaT and others, has become what real estate has long been but recently amplified in terms of seller’s market, bidding frenzies, and buyers determined to throw caution to the wind to emerge victorious. It’s wild out there, and to your point, it seems pretty clear that money is “buying a lot less than it used to.” Indeed. Thanks for this one.
I collect using VERY simple, common sense rules:
1) I buy what I like and enjoy.
2) I am not swayed by trends or market whims defined by others.
3) I buy the best example I can afford.
4) I accept that only the very pinnacle of vehicles are special enough to truly be considered investments.
5) I accept that I can lose money on every vehicle but hope to at least break even.
Well said!
Odd market indeed. We all know there’s a correction coming – as it most surely will happen. We just don’t know when and how much higher the market will go before it strikes. Nobody knows for sure.
Having gone through many ups and downs, I’m sticking to my own, probably ill-informed advice to stay diversified and never be the outlier.
By the way, I thoroughly enjoyed your Chowder presentation!
Kobus, many thanks for your comments, support, and for listening to the Chowder call. Diversification is the best way to protect wealth when things are this uncertain.
Philip, what an amazing newsletter and presentation. Totally awesome. The presentation is so well thought out and loaded with interesting data points. I need to give this a lot more study. Thanks!
Steve, thank you for your positive comments! At the end of the day the dollar is buying a lot less than it used to. Let’s pray this does not get out of control and we see a $750,000 Ferrari 328!