Porsche 912 Targa
We love cars, but are they a good investment? Should you dump your stock portfolio and plan to use classic cars for your retirement? Why do so many wealthy people invest in cars? These questions and questions like them are all over the internet, but is it a good idea to buy an automobile now to hope you can sell it for a large profit at a later date?
The answer to if cars are a good investment is more complex than it may first appear. We know that with a few exceptions a modern car will keep depreciating for about 30 years and in some cases longer. However, normally after this depreciation values will start to stabilize and then follow an upward trend.
If a particular car is a good investment depends on many factors and it can be easy to misread the market. For example, in 1983 some people purchased the then new Porsche 944 as an investment. These folks took the new car and put it in storage thinking the market would stay hot for the sports car. In this case the time capsule cars will fetch a bit more than one that is new, but with early 944s rarely getting near $10,000, this (at least at this point) was a bad idea. In the early ’80s one would have paid $19,000 for a 944 and today even a perfect example would struggle to get back the original investment.
While the Porsche 944 may not have been a good investment as a time capsule, it may be a decent one now. Especially, the lower production and higher performance S, S2 and Turbo models. The market on the 944 has been starting to increase meaning that you could make some money in buying and holding onto a 944 now.
This is a general rule for more attainable collector cars. For people hoping to make some money on a car that in today’s dollars would cost about $90,000 or less the key is to purchase once it is done depreciating. Most cars in this class will depreciate for about 30 years and then start to level out before gaining some value. The key is to watch the historical trends on a given car’s price and if you see an increase pull the trigger.
However, these cars are rarely blue chip investments. However, there are some cases when it is a safer bet than others. A perfect example is the air-cooled 911. The change to water-cooling the rear-engined sports car marked such a significant change that it made all air-cooled 911s, especially the 993 generation cars, very sought after. Having said this, the 993 did go down in value for a while before it started to climb back up.
In a similar vein the move of the 911 to turbocharging on the Carrera models or the change of the Boxster / Cayman to a flat-four engine could result in earlier models gaining more favor. It is still very early to tell, but look for 991.1 and 981 generation cars to depreciate for a while, but eventually gain in value.
All of this is fine to make a small amount of money, but these cars (outside of some rare examples) will not give you enough to retire. In general gaining huge sums of money from investing in cars is difficult and you often need quite a bit of money to do that.
One marquee that provides higher returns is Ferrari and there have been bargains in the past. For a while a Ferrari 308 GTB/GTS could be purchased for about $30,000. This has since changed greatly and these cars are pushing the $100,000 mark. All Ferraris do not perform this way. Most models won’t reduce their value enough that they cost the same as a new Toyota Camry. A few are currently in that realm and should be watched as a possible good investment, but we would be careful before jumping on them. In general if a Ferrari has more than two seats, it is never going to be a top investment car.
If it is difficult to invest in cars then why do so many wealthy people do it? The answer for such people is twofold.
People with a large net worth are able to purchase high priced collector cars. For some this may be a rare American muscle car from the ’60s or a low production European sports car. They may also buy limited production cars that already have a price tag in the millions of dollars range. A fairly recent example of this would be the Ferrari Enzo. Folks that bought one of these rare Italian supercars never lost money on the car (providing they didn’t wreck it) and they have actually made money in a relatively short time frame.
For people with a lot of money cars like the Ferrari 250 GTO would have been a very good investment about 10 years ago. At the time a few million dollars would buy one of the 75 cars made. Recently a 250 GTO set a record selling for $38 million dollars at auction. Investments like these are few and it requires that you have some serious cash before you make such as purchase.
The other reason that many wealthy people invest in collector cars is to diversify their assets. A car is similar to Gold or Silver in that it is a tangible asset. Prices of automobiles also change depending on current market conditions, usually meaning that weaker currency just makes the price of the automobile go up accordingly. By putting a portion of their wealth in cars they have assets that can be sold for an equivalent price should they need money if the economy tanks. There is also the upside that a collector car may increase in value by itself.
So, should you change your retirement strategy to include collector cars? We think that if you have a very high net worth that it is wise to carefully select some rare classic cars that have good upward potential.
If you aren’t worth millions, but like cars then we recommend looking for vehicles that have just started to climb in value. In general, cars from the late ’70s and early ’80s are just hitting this time. Cars like the Porsche 928, 944 Turbo, Pontiac Trans Am, Corvette and Ford Mustang from the 70’s and 80’s are still affordable, but look to have potential value growth.
The main thing is to not put all your eggs in one basket and collect what you enjoy. If you enjoy the cars in your collection and if they don’t turn out to have huge financial gains you will still enjoy them.