The State of the Classic Car Industry: Bubble or Correction?

Just a few years ago a savvy investor who could tell a Ferrari from a Lamborghini stood to make a pretty penny in the classic car industry. It was hard to go wrong. With prices going up every year the market looked like Las Vegas real estate, pre-bubble. Even relative novices were making money. Everyone was happy.

Unfortunately, old Mr. Newton got in the way eventually and what went up now looks like it’s coming down. The question is not if it will drop, but instead collectors are wondering how much and when. With data in from the big auctions of last season, the picture is starting to become clearer.

The Numbers Look Bad for the Classic Car Industry

Experts watching sales in 2016 and early 2017 noticed a few trends that might indicate a general softening of the market, especially at the Scottsdale events, known as some of the largest around.  Although the average price per car rose, the volume of sales dropped, meaning less money is changing hands across the board. The industry is shrinking.

Deciding what’s causing this to happen is a key to understanding what the future of the classic car industry holds for enthusiasts and speculative investors alike. Most experts agree that the results show average cars are not fetching top dollar like they were just a few years ago. This has resulted in a five-year low on the Hagerty Index, a tool used to measure confidence in the classic car industry. The best cars, one that is rare due to production scarcity, condition, or history, are still in high demand. Essentially, the separation between a good car and a great car is widening both in demand and value.

What is Driving this Trend?

Experts suggest that the steady increase in prices over the past few years has brought a glut of

mediocre vehicles to market being sold by new auction houses and bought by new collectors, enticed with the recent history of high profits in the industry. This lack of experience has resulted in many less than perfect vehicles being offered at premium prices. And, the serious collectors are taking a pass.

Additionally, sales of luxury goods are flattening in other sectors, such as fine art and high-end real estate, and prices are dropping, underscoring the belief that separation is occurring between all luxury and ultra-luxury goods.

Bubble or Correction?

If you own a classic car, you are most likely wondering if you are looking at a market poised for collapse. The experts don’t necessarily think so. More likely, a correction is occurring. For middle of the road vehicles, prices will continue to drop for the next twelve to eighteen months until real value can be had for a price that makes sense for the average investor. At that time, there should be some enticing deals to be made. It is not necessarily a time to panic and sell, but don’t expect to get top dollar for anything less than a perfect vehicle a year from now.

The classic car industry benefits by having real collectors and pure investors present in the market. The collectors will always buy emotionally and will sustain some level of demand accordingly. The investors might drop off if prices bottom out, but they will be back when there is money to be made. Bursting bubbles are catastrophic events. No one is predicting that here.  But, the industry enjoyed steeply increasing valuations for many consecutive years, so any correction could be severe. Most likely, reasonable pricing for mid-range collectable cars will return within two to three years and the cycle can start all over again.