As Market Expands, Classic Car Values Rev Higher

By AutoFOXBusiness

As a slew of upcoming car auctions promise to fetch millions of dollars for sought-after automobiles, there’s also a growing market for affordable rides that are ready to hit the road.

Car collecting has gained steam since the 2008 financial crisis. Demand for Ferraris and other desirable vehicles is at an all-time high, while pickup trucks and station wagons are joining the ranks of collectible vehicles.

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The hobby is quickly expanding, and with more buyers than sellers, valuations are on the rise.

Hagerty, an insurance company that focuses on classic cars, tracks the value of cars from yesteryear. Taking a cue from the stock market, Hagerty also provides its own collector car indices for segments like British cars, Ferrari and muscle cars.

Hagerty’s blue chip index, which tracks 25 collectible automobiles from the post-war era, gained roughly 230% over the five years ended in May 2014. That easily tops a 117% increase in the S&P 500. The Hagerty blue chip index was up about 14.7% year-to-date through May.

“There’s a limited supply of all the good cars, and there’s very high demand,” said McKeel Hagerty, the president and CEO of Hagerty. “The world is making more millionaires than Ferraris and Mercedes.”

Hagerty added that the market has fully recovered after prices for certain types of cars fell as much as 30% during the recession. Sports cars, which are quickly rising in value, have already surpassed previous highs.

A busy season for car auctions began last week in Reno, Nev., where Barrett-Jackson headlined the city’s Hot August Nights classic car event. The Reno-Tahoe auction by Barrett-Jackson, which holds some of the largest auctions in the world, primarily focuses on American muscle that harkens back to an era of boisterous engines.

For instance, a custom 1967 Ford Mustang sold for $97,900, including the buyer commission. A 1967 Chevrolet Corvette convertible was purchased for $82,500.

Barrett-Jackson CEO Craig Jackson said the company’s upcoming auction in Las Vegas will have a “good mix of drivers and numbers matching” vehicles. The Las Vegas event attracts more locals interested in bidding or watching the action, while people fly in from all over to attend Barrett-Jackson’s premiere auction in Scottsdale, Ariz.

At this year’s Scottsdale auction in January, a 1967 Chevrolet Corvette L88 coupe—the only known example with red paint and a red interior—became the most expensive Corvette to ever sell at auction, going for $3.85 million. Baseball Hall of Famer Reggie Jackson paid $742,500 for a 1991 Ferrari F40 that was rebuilt by Gas Monkey Garage of Discovery’s (NASDAQ:DISCA) “Fast N’ Loud.”

Auctions scheduled for later this month are expected to put up even bigger numbers.

On Aug. 14, a 1962 Ferrari 250 GTO will cross the block at The Quail, A Motorsports Gathering, a Bonhams auction in California. Experts believe the red racer could set a new record as the world’s most expensive car. The current mark is held by a 1963 Ferrari 250 GTO, which sold for $52 million last year.

“Ferraris are in their own stratosphere,” Jackson said, calling the decision to sell the 250 GTO at auction with no reserve a “gutsy move.” Jackson noted that no-reserve auctions, which Barrett-Jackson popularized, present a “true look at the market.”

Ferrari has clearly become one of the hottest brands in the world of car collecting, as the Hagerty index for the Italian supercars has jumped 430% in just five years. All of Hagerty’s indices assume the cars are in condition No. 2, or excellent.

Two days after the 250 GTO is sold, RM Auctions will offer up a 1964 Ferrari 275 GTB/C Speciale in Monterey, Calif. The car is projected to fetch a winning bid in the tens of millions. RM’s Monterey docket is headlined by two more Ferraris, a 250 LM from 1964 and a 275 GTB/4 from 1967. Those two models have guide prices of around $10 million.

“Now that the market is getting a lot of attention, it becomes even more in demand than it normally is,” Max Girardo, RM’s auctioneer and the managing director of RM Europe, said of Ferrari.

Kelley Blue Book senior analyst Karl Brauer, who has bought and sold collectible cars for nearly 30 years, said automobiles tied to racing “are surefire ways to make money.” That helps explain the ever-increasing sale prices for the Ferrari 250 GTO, but the most important factor will always be volume. Only 39 of them were ever produced.

“I’ve always looked at the Ferrari 250 GTO as the car. If I was offered one car for free, that’s the one I would pick,” Brauer remarked.

Car aficionados will also be watching the RM auction for a 1965 Ford GT40 Roadster prototype, which may attract bids of up to $10 million. According to Ontario-based RM, its two-day Monterey auction saw a total of $125 million in cars sold last year.

Girardo said RM focuses on auctioning the highest quality vehicles in each class. Sports cars from the 1960s and 1970s are garnering the most demand right now. RM also looks for elements like single ownership.

“We try to select the best example of everything,” Girardo explained. “Whatever car it is, the ones in the future that will do really well are the rarest and the best of their kind.”

Buying Tips

Cars that come from a single owner who has an interesting story can create a class of their own. Hagerty said buyers looking for value over the long haul can count on two celebrity owners: Steve McQueen and Elvis Presley.

Brauer once owned a 1970 Dodge Challenger R/T SE and a 1974 Pontiac Firebird Trans Am 455 Super Duty that were ordered by auto executives.

“If you really want to make money, you really have to get things like documentation. You need to have 100% confidence. And the car needs to be as little touched from the factory as possible,” Brauer added. “You should know what you want out of it. I started out buying cars that I found interesting and wanted to drive.”

Jackson also recommends that buyers look for cars they admire. “I advise people not to buy a car just to make money,” he said.

But that doesn’t mean collectors should throw caution to the wind. Interested buyers should gather as much information as possible and “leave most of the passion behind,” Jackson said. Barrett-Jackson auctions “actually show the reality of what cars are selling for,” he added, and car shoppers can visit the company’s website to find the latest real-world values.

Hagerty advises bidders to bring an expert with them to avoid getting “into the heat of the moment” and overpaying at auction.

“Fortunately for all of us, it’s a much safer place to buy now. There are a lot of good places to get information,” he said.

Also keep in mind that body work can be more costly than mechanical fixes. “It’s a lot easier to get an engine running than repaint or fix a lot of rust. Hourly rates for body work are at all-time high. You want a car that’s in good physical condition,” Hagerty explained.

Future Classics

With a younger generation joining the ranks of car collectors, the market has expanded to include a wider variety of styles that carry a bit of nostalgia. In this genre, resto-mods—cars that are restored on the outside but have modern features inside and under the hood—are growing in popularity.

More collectors are pursuing “American cars that didn’t have the respect in the past,” Jackson said. “They’re popular with people looking to drive, and they’re great conversation pieces at car shows.”

Classics are re-emerging thanks to new interest from a younger crowd. Niches like 50s convertibles, Dodge Hemis and other American muscle cars are going strong as well. Even station wagons and pickups are becoming very popular.

“People remember growing up with them,” Jackson said.

In any niche, the most popular vehicles tend to boost the values of lesser cars. Demand for Mustangs lifted prices for the Ford Falcon, which served as the platform for the original Mustang. Hagerty’s price guide shows a 1960 Ford Falcon with a six-cylinder engine goes for $19,500 if in perfect condition, compared to just $15,200 in 2012.

“When a top model goes through the roof, lesser models pick up as well,” Hagerty said, providing the Mercedes 280SL and Porsche 911T as examples. Mustangs, Chevrolet Camaros and Mercury Cougars can be had without putting much work in them. “You get the same quality of car, maybe a smaller engine. They tend to be better deals.”

Brauer noted how the Boss 429 Mustangs are pulling up the Boss 302. As for Pontiac Firebirds, the closer they are to Burt Reynolds’ Trans Am in “Smokey and the Bandit,” the more money they’re worth.

“Those have really shot up to numbers I wouldn’t have believed 10 years ago,” Brauer said of the 1977 and 1978 Pontiac Firebird Trans Am. “A ‘73 or ‘74 would destroy a ’77 or ’78 in a race, but their values will catch up to the earlier models.”

Even modern vehicles are showing up in collections. Brauer purchased a 2005 Ford GT for around MSRP, which was $139,995. The Hagerty price tool now pegs a condition No. 2 model at $219,000. Brauer and Hagerty suggested the Acura NSX, which is due to make a return in 2015, could be the next modern sports car to appreciate in value.

“If you see something you really like, and you know it’s a relatively low priced car right now, you should just move on it before it’s too late,” Brauer said, recalling a missed chance to invest in a BMW Z8.

In the company’s annual Hot List, Hagerty identifies the Jaguar F-Type R, BMW M5 sedan and Chevrolet COPO Camaro as three cars that will be collectible down the road.

General Motors (NYSE:GM) limited production of the 2014 COPO Camaro to 69 units, commemorating the original run in 1969. Serial number 1 raised $700,000 for charity at Barrett-Jackson’s Scottsdale auction.

The 707-horsepower 2015 Dodge Challenger SRT Hellcat is also bound to become a collector’s item in the future. The first one ever produced, with VIN number 0001, will be auctioned off for charity at Barrett-Jackson Las Vegas next month.

Hagerty also sees a bright future for Fiat Chrysler Automobile’s Alfa Romeo 4C, an Italian sports car that goes on sale this fall with a starting price of $55,195, and Ford’s (NYSE:F) 2014 Fiesta ST, a performance hatchback that starts around $21,400.

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