An investment, by definition, is intended to make a profit for the investor. When making the investment decision it is incumbent upon the investor to consider the risk in comparison with the perceived profit. A wise investor would have some familiarity with the market in which the investment will be placed.
The preponderance of investors can be found putting their money in Wall Street, real estate, banks or precious metals. Some will purchase art objects; perhaps less lucrative than stock investments but they enjoy owning and appreciating art.
Similar to the art investor is the automotive investor in that he enjoys owning, and perhaps showing, his piece of rolling art. However, watching the large sums being spent at a Barrett-Jackson auction could fool the casual observer into thinking there is big money to be made. This is rarely the case.
During the 1980s and 1990s, the value of classic cars exploded, but in the late 1990s they tanked drastically. What was driving the value explosion was the financial investor, one who was making a pure investment play. These financial investors drove many of the classic car enthusiasts out of the market. That left only fellow financial investors in the market and prices began to sag. With prices driven beyond the reasonable value of the cars a “correction” ensued and many investors lost money on their classic cars.
The old car investor is unique in comparison to most investors. He may purchase a fully restored classic car or an old machine with the intent of performing the restoration himself. The art investor is not refurbishing his newly purchased Monet!
Beneath the rarified strata where a Duesenberg SJ brings $4+ million at auction, lies a wealth of valuable rolling stock. Depending upon the car and the mood of the public, a classic car enthusiast/investor may make a good profit or break even. But if money is the object, take a lesson from the 1980s and 1990s and look elsewhere.
There are two basic approaches to investing in an old or classic car. The first approach is simply purchase a completely restored car at a premium, hoping it will appreciate. The second approach is buying a car in need of a complete overhaul and restoring it.
Purchasing an old classic that has been fully restored is clearly a “market play”; the investor is gambling the market demand for his classic car will increase. In this investor’s mind, this car could just as well be a painting, statue or a first edition book. It is something that has an intrinsic value that has been enhanced by its rarity. Or a value has been attached to it by someone who remembers owning one as a teen and wants to recover the good old days.
The second approach, buying and restoring a classic, can be its own reward but perhaps not financial.
Recently a 1972 LT1 Corvette sold for $33,500; the car was in pristine condition. The question, of course, is how much did the owner have invested in the car? Assuming he owned the car prior to restoration, a frame-off restoration would run between $20K and $25K. Older Corvettes are noted for frame rust so getting the body off would be important if the restoration is to be a quality job. At best the previous owner made some money, more likely he broke even.
Within the dark corners of garages, barns and storage sheds of America rest the “works in progress” that never reached completion. Within the “kit car” industry, for example, it is estimated that than 20% of the kits purchased ever see the road. One needs only to survey eBay to get a measure of how true this is. A similar result can be assumed to be the case for old car restorations. It is, again, a question of goals. The classic car enthusiast who enjoys the restoration process will complete the job. He will probably sell it off quickly so he can start another. The investor who buys a restoration candidate with the goal of driving the car and making a handsome profit will lose interest. Like the kit car industry, there is a secondary market where enthusiasts search out the incomplete cars and buy them for pennies on the dollar.
As hobbies go, classic car ownership can be its own reward. In most cases, the enthusiast can at least break even. After years of enjoying the restoration, showing and driving the car the enthusiast will ultimately sell the classic. Old cars can be an excellent investment if one understands that the return on the investment will be more than monetary.