Analysis: Classic Car Prices Fly and Falter
- Giles Gunning
- Nov 22, 2022
- 5 min read
Updated: Dec 1, 2022
The classic car market: a place of passion, emotions and, often, irrational thinking. And that irrational thinking leads people to do some crazy things when it comes to values. Generally, though people are rational and do care about values. Anyone who says they aren't interested in their values or where the market is going is either (a) a billionaire, (b) lying or (c) both.
It's coming to the end of the year and we're not yet billionaires so let's walks through what has happened to the classic car market since 2004, price trends, behavioural changes as well as what might well happen next. Let's go...
What has happened to classic car prices over the past few years?
This graph shows the median price, by year between 2004 and 2022. There's two things to call out here:
Prices have risen 38% between 2005 and 2010. This price rise although underway pre the 2008 global financial crash, was turbo-charged by two primary factors (i) the search for 'alternative investments' as the 2008 crash saw the prices of property and financial markets tumble and (ii) the extensive quantitative easing from central banks that boosted the money supply around the world post 2008
Classic car prices are flat over the past 5 years. The instant conclusion some might draw here is that classic car prices haven't fluctuated much over the past few year. Wrong. Let's explore that further, but first...
How have classic cars performed compared to other asset classes?
Well, not great in all honesty.
The grey bar represents a 12 month price change for each asset and the blue bar represents the 10 year price change of each asset.
And it's a pretty sorry state of affairs at the headline investment level. There's more to it though...
What makes have delivered the best / worst return?
This graph shows the price change for the 75 most common manufacturers between 2018/19 and 2021/22.
This is where things get interesting. Underneath that flat few years at an overall market level is a huge spread of price variation between marques that are up 101% to those that are down 55%.
Question: what do you notice when you look at those marques performing strongly vs not?
What trends are we seeing in the market?
The answer to the what do you notice question should be: that those vehicles performing most strongly (broadly) are those from America and Japan. American marques are up 20%. Japanese marques are up 23%.
Conversely the English and European marques are struggling.
It goes without saying there are exceptions. Land Rover are up 45%, AC are up 36% and Cadillac are down 20%. However, the principle holds for the vast majority.
Now, for perhaps the most important chart when it comes to classic car prices. We call this one 'the wave':
The graph shows the median price change of vehicles from each decade between the 30s and the 90s between 2018/19 and 2021/22. In other words, over a 3/4 year period what has happened to the prices of cars from each decade.
We know from analysing over £10bn of sales from the last 20 years that this wave has existed for decades and will continue into the future. The change over that period is simple: it's shifting to the right.
To put it another way, this graph represents the generational shift in classic car collector demographics and preferences that gradually moves to increasingly modern vehicles. It's part of the reason certain pre-war cars have struggled, exemplified here by cars of the 30s being down 29% over the period.
The cars from the 40s and 50s are following closely behind and the data tell us they are due to suffer the same fate as those from the 30s.
Inversely, the 70s cars have been incredibly strong over the period, up 23%.
Again, the cars from the 80s and 90s are following on closely behind and the data again indicates that these vehicles are likely to see prices rises akin to their 70s counterparts over the coming years.
How is the level of demand in the market?
To assess level of demand for an asset like classic cars is tough. The best metric is sell-through rate; the percentage of vehicles that sell at auction. It has its flaws, over-enthusiastic estimates from auction houses or pessimistic estimates can skew the figure either way not to mention multiple variables like auction location, conditions etc. We can still draw conclusions though, here are two to note:
The sell-through rate has been fluctuating in and round the 70s for the past 5 years aside from a Covid induced drop in 2020
There's an overall downward trend on the sell-through rate (light blue line) of 1 percentage point per annum
What is the future of the classic car market?
Demand for classic cars / assets are driven by five primary factors:
Nostalgia - Humans are emotional creatures, and human decision making is rarely a rational process. That's why 'the wave' graph is so important - it talks to the point of a shift in appetite and emotions towards cars of different eras. People will always buy the cars from posters on their wall as a child. We have no concern here for cars of the right era. Cars from the 40s and 50s will come under increasing pressure though.
Environmental Concerns - This is widely documented as the biggest threat to classic cars and therefore prices, as demonstrated multiple times given the mileage classic cars do on average the environmental impact of classic cars is only 0.22% of all transport emissions. Our estimates indicate that classic cars will be on our roads till at least 2045. We have little concern here in the medium-term.
Wealth - Despite much naysaying and concerns the World Bank still projects global growth of 2.9 percent in 2022 and 3 percent in 2023-24. Slowing but still growth. Whether these forecasts materialise is anyone's guess but a growth in wealth as we're seeing here correlates to an increase in asset prices. Good news for classic cars.
Returns - The return an asset generates is a component of the price for the said asset. In classic car terms, this is a highly fragmented and complex picture with returns varying greatly by marque, model, condition and more. No sweeping statements from us here.
Liquidity - What we mean by this is the ease and speed to which an asset can be transparently valued and converted to a means of payment. An increase in liquidity increases demand. The first driver here is the rise of online auctions (now 60% of the overall auction market) has allowed an enthusiast to go from wanting to sell to money in your account within 14 days. The second driver is platforms like The Classic Valuer that allow that give people complete transparency over recent sales in the market, the price points at which they have sold at and ultimately the ability to rapidly understand for your chosen car what the market value is at a point in time as well as the investment trend over time. Liquidity is becoming an increasingly positive factor for classic car prices.
So, where does this leave us?
Based on those 5 factors, in the medium-term 3 are net-positive (emotions, environmental and liquidity) and 2 have significant caveats on their conditions (wealth and returns). We're anticipating classic car prices to remain stable at a headline level in the short-term.
Picking wisely though could find you far ahead of the pack. Cars from the 80s and 90s, particularly those from the US and Japanese marques will perform strongly and are where we anticipate the largest relative price rises. Cars from the 40s and 50s likely to follow their older siblings of the 30s on bigger and bigger price declines.
Essentially, ride 'the wave'.
Now, those are guidelines not rules. There are huge exceptions to those guidelines but the principles hold true. So, as we always say - buy with your heart first and a drop of data. Don't buy a car to make money. Buy a car because you love it. And if you happen to make money, then Christmas has come early and you'll be a little bit closer to being a billionaire after all.
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