Sunday, June 21, 2009

Classic cars and their value over time

In my experience there are three basic scenarios for cars on how they will depreciate, respectively gain in value. By the way, of course cars of this category can increase in value beyond the initial sales price. We have recently seen low mileage Mercedes 300 SL (R107) offered for more than 50'000 Euros, which is clearly more than the 60-70'000 DMs (30-35'000 Euros) that were asked for a new car in the 80ies.

Scenario C (red)
The car is an instant classic and collector's item. There's much more demand than market from begin on. The car never really drops in value and typically gains a bit in a continuous way. Few cars really fall in this category. Some seem to belong in there in the beginning when people are paying premium prices to get an early one, but most of them then still depreciate. Exceptions probably are the Ferrari Enzo (?), Ferrari F40, McLaren F1. But as said very few cars make it into this category.

Scenario B (green)
Cars that fall into this category are usually neither volume cars nor everyday cars. They typically are pretty rare from the beginning and bring some sensation with them. Many if not most of them are either convertibles or sportscars. While they do depreciate over the first 10-20 years they still lose less value than the mass production cars. They are always sought after during their whole career. After some years they start to continuously gain in value and can actually even outperform their initial sales price. Cars that fall into this category are the Mercedes SLs (R113, R107), the Porsche 911 and derivates, TVR 3000 S, Morgan +8, BMW M3 (E30), BMW Z1, BMW M1, most Ferraris, some Lamborghinis, some Maseratis, etc.). You get the picture.

Scenario A (blue)
This is the most common scenario. Most cars actually fall into this category. From begin on they depreciate (rather fast) and reach over the years (let's say 7 to 15) the bottom, a fraction of their initial sales price. Some then become collector's items and raise in value quickly, some others slower. If you take a Volkswagen Golf Mk1 for example, this car has been produced in millions, but after 20 or 30 years only a handful remain in a market and they become somewhat exclusive. So their value increases and can actually become higher than the initial sales price. In the exhibit this is illustrated with graph A1.
A very special category are race cars. Quite expensive when new they have almost no value after few years and can be purchased for very little money sometimes. This was especially true in the late sixties and the seventies, when Ferrari GTOs or Porsche 904/906 were on the market for a few thousand USD or DMs. Thanks to the developments are historic racing some of these became later very expensive. The Porsche 906 was sold for roughly 30'000 DMs when new, changed hands for maybe 6'000 DMs in the late sixties and is today valued at around 600'000 Euros (multiply with 2 for DMs). This is indicated by graph A2.
Cars in this category are everything from the Volkswagen Beetle, to Fiat 850 Sport Spider or Ford Mustangs. But it includes also cars like the mentioned Porsche 904/906, the Lotus Eleven or the prewar race cars. Actually cars that can't make it into B or C end up in A. Or they disappear totally.

Now there is one comment to be made: To really gain substantial value over time the car must remain in driving condition and often needs to be restored multiple times. The cost for maintaining or restoring the car can be easily higher than the value gain driven by it. And even if the car is barely used it will still ask for quite a bit of maintenance and a dry garage and insurance and .... So, if you are only interested in cars for making money, you may be better in buying something else. But if you like cars and love to drive them, making money with them is just a bonus on top and of course makes the hobby even more attractive. See also my previous post on a comparison of cars and their value when new and now.

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