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Should I invest in a classic car?

Should I invest in a classic car?

By David Crossley, Business Manager, BDO Wealth Advisers

The world of collecting is a fascinating one – there is hardly an item, however arcane it may be, that someone somewhere does not have an interest in collecting.

There are people who collect stamps, cigarette cards, beer bottles and even comics, amongst other items.

The world of collectors’ of Classic Cars and classic motoring memorabilia has moved from compulsive hoarding to that of a lucrative investment prospect and in the last 20 years, this trend has gone from a small group of enthusiasts to a multi-million dollar industry, encompassing businesses dedicated to acquiring and restoring desirable automobiles, to wealthy individuals who amass a collection of exotic and rare vehicles purely from a lucrative investment point of view.

In the United Kingdom, the United States and in Europe, the sheer quantity and scale of this business of collecting is mind boggling and values over the years have shot up, particularly in respect of the more exotic and scarce marques.

But where does that leave you and me?

How do I, as a person with relatively limited means invest in this market?

As with any foray into a specialised investment niche, there are plenty of caveats that can trip up the unwary and inexperienced investor. In the case of motor vehicles, this is no different. Let’s have a look at some of these pitfalls.

Know-how

If you plan to buy vehicle for future investment purposes and you are not familiar with values and saleability, it is best to do some intensive research or engage the services of someone in the know, before you make that purchase.

Remember that emotion can often override common sense and that old MG may bring you nothing but heartache.

Here are some of the common pitfalls when purchasing a vehicle for investment purposes:

  1. Check the general condition of the car from a mechanical and body point of view – costs to refurbish these items may far exceed the investment value of the car. Have an experienced, mechanically minded person check over the vehicle and if it has too much wrong with it, rather walk away and find something else.
  2. Purchase price – People will try and sell an old car on the pretext that it is worth a lot of money because of its age. Don’t be persuaded into the purchase but check classic car sources (Magazines, Marque clubs and websites) to determine the going prices.
  3. Is it a matching numbers car? This means that the engine and body are as they left the factory – this is an important factor in determining future investment values.
  4. Has it been brutally modified? An old Rolls Royce with an American V8 installed and modern mag wheels will not only look tacky but will require some sympathetic and costly refurbishment to restore it to investment potential.
  5. Is the registration in order? – if the car is what is termed a “Barnfind” in that it has not seen the light of day for a while, then registering the car without the original ownership papers could prove to be a problem.
  6. Provenance – a vehicle that has an ownership history incorporating a celebrity or famous public figure will have a value thatis considerably enhanced, but check that this is a genuine provenance, or you could end up paying too much. A Rolls Royce that was once owned by Sir Elton John, could add as much as a 20% premium on the selling price.
  7. Make and model – Values of classic cars vary according to the model. For example, an Aston Martin DB6 will command a price 50% less than an Aston Martin DB5, even though they are very similar. The reason is simply that the DB5 became an icon by virtue of the fact that it featured in a number of the early James Bond movies.
  8. Scarcity – Some cars like the Lamborghini Miura have sky-rocketed in value due to limited supply and are sure to continue rising in value exponentially. The fact that they are indifferently built and horrendously expensive to restore and to maintain will be overlooked in terms of their investment potential.

In conclusion, be a little hard headed about your purchase and restoration expenditure if you are buying for investment purposes.

If you are an enthusiast and want to buy for the personal joy and satisfaction of owning an iconic vehicle from another era, then you may not mind buying with your heart, but beware – what starts out as a romantic notion can swiftly become a financial and mechanical liability and a heart break.

You must be resilient and be prepared to get your hands dirty from time to time!

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