Is the threat of a poor economy bring prices down yet on P Cars?

[1973911s]

I have been sitting on the sideline collecting my coins, waiting for the prices of P cars to start to drop. Are prices starting to come down across the board, specific ranges,etc?

Michael

[silverc4s]

newer models perhaps, due to yuppie mortgage bust. collectible cars of all kinds, no.

[kilodawg]

You know, I thought that would be the case BUT.

Last October when I sold my '84 I looked at prices and in order to make a quick sale priced my car realistically based on what I was seeing in the market at the time.

Then just this past week a buddy of mine decided he wanted to get into 911 ownership so the two of us starting looking and to my surprise asking prices seemed to be several thousand higher than back in October. Now that might have been due to the whole winter/spring thing but had I been selling my '84 today I would be asking $3-5K more than I did...

[silverc4s]

i think that's up, the question was down...

[grudk]

Originally Posted by 1973911s

I have been sitting on the sideline collecting my coins, waiting for the prices of P cars to start to drop. Are prices starting to come down across the board, specific ranges,etc?

Michael

I think the answer is 'yes,' but suspect the 'best of the best' cars will hold their value reasonably well. RS/RSRs, etc may continue to appreciate due to a weak dollar, as there is international demand. The cars that rode up with the housing/credit bubble will fall somewhat (most street cars), though again this should be mitigated by inflation.

I think there is some evidence for this already from the auctions, but we'll know more in a few months. I'm interested in picking up an early 911 myself, and I will be waiting.

[Rich76_911s]

This was a feature on Barrons a while ago, that I thought might be an interesting read for some

4,000-Pound Weaklings
By ROBERT CAMPBELL ROWE

ADD MUSCLE CARS TO THE LIST OF ASSETS WHOSE BUBBLE IS BURSTING. At last month's four major Arizona collectible-auto auctions (three in Scottsdale, one in Phoenix), these vehicles' once sky-high prices came down to earth.

For most of these big-engine Detroit machines from the 1960s and early 1970s, prices have fallen by 10% to 15% over the past two years, but for some, the damage has been far worse A 1971 Plymouth Barracuda, with a hemi engine, fetched $396,000 -- impressive, but about half of what one sold for in 2006.

In contrast, prices for classic pre-World War II American and European luxury cars have fallen only slightly or remained steady after upward spikes over the past two years. Flashy American cars from the 1950s are still doing well, as are high-quality sports and racing cars, particularly European. Once again, Ferrari is king of the road; three out of 16 cars sold in Arizona that went for at least $1 million bore its prancing-horse emblem.


Some of the stars of last month's Arizona auctions and the prices they fetched. Top is a 1934 Packard, 12 coupe, $2.4 million. Second is a 1963 Shelby AC Cobra, $1.73 million. And third is a 1959 Ferrari 250 GT, $3.3 million.
Results for all categories might have been worse, except for the weakness of the greenback, which attracted foreign buyers. All the auctioneers saw a 10% to 15% increase since last year in the ranks of registered foreign bidders, who are particularly fond of European marques.

At the four major annual sales -- run by Barrett-Jackson, Russo and Steele, Gooding & Co. and RM -- about $155 million was paid for 1,600 vehicles, ranging from a $3,300 1978 Lincoln Continental to a $3.3 million 1959 Ferrari. While the auctions are just a small part of the multibillion-dollar worldwide collector-car market, in which many transactions are done privately, the results are watched closely and serve as benchmarks. What happens in Arizona doesn't stay in Arizona.



MUSCLE-CAR PRICES' SINGULAR lack of muscularity reflects oversupply, the uncertain economy and the crazy run-up in prices in preceding years. "With high prices, cars start to come out of the woodwork and supply exceeds demand," says Keith Martin, publisher of Sports Car Market and Corvette Market, magazines popular with collectors. "We saw prices starting to drop a year ago, and now the trend has accelerated," says Martin, one of the first to predict steep declines for muscle cars.

Comments Drew Alcazar, who founded Russo and Steele: "We're catching our breath. It's a sorting-out time." His firm's January sales generated $20 million in revenue by selling approximately 300 cars. Its top results: a 1969 Corvette sold for $412,500; the aforementioned '71 Barracuda, $396,000; and a 1969 Chevelle Coupe, $341,000.

In sheer volume, the Russo and Steele sales are dwarfed by those run by Barrett-Jackson, for which Alcazar once worked. This year, Barrett-Jackson sold 1,167 cars for $88 million. Over six days, its sales drew 280,000 admissions. In the crowd were 5,000 registered bidders with established credit exceeding $1 billion. And the auction has become a staple of cable TV.

In a local newspaper, B-J President Steve Davis was quoted as calling the event "a circus." Carnival might have been a better description. The auctions drew dozens of vendors, peddling everything from car-themed art to jewelry to time shares. The aroma of peeling rubber from an outdoor track wafted into the 600,000 square feet of tent space in which the auction was held. In the center of the tent, cars were driven across a stage as fast-talking auctioneers and their assistants screamed out bids. This went on for a mere 10 to 12 hours a day.

Celebrities are Barrett-Jackson fixtures. This year's sightings: Arizona Diamondback pitcher Randy Johnson selling a car, Nascar driver Tony Stewart buying and selling, and Tonight show host Jay Leno on stage at a charity auction.


Comedian Jay Leno was a hit at Barrett-Jackson.
The core of Barrett-Jackson's offerings are muscle cars, custom autos and Corvettes. The company virtually invented "resto-mods" -- recreations of old cars, fitted with all of today's goodies. An example would be a new car that looks like a 1957 Chevrolet Bel Air convertible, boasting a modern automatic transmission, up-to-date air-conditioning and an earsplitting sound system. A vehicle like this can easily sell for $100,000-plus. But such cars can be very hard to resell because they're not true collectibles. Prices in this category are sliding.

With just a smattering of pre-war classics and European sports cars, Barrett-Jackson had a less-than-stellar sale. Revenue came in at $88 million, about 20% under 2007's $112 million. Some collectors blame the decline on the company's move away from high-quality but relatively modest consignments -- what B-J specialized in for decades -- to mega "sales events." B-J counters that sellers had more exceptional cars in 2007.

IN SHARP CONTRAST TO THE "good-ole-boy" atmosphere at Barrett-Jackson and Russo and Steele is the elite atmosphere of the other two major auctions, run by RM and Gooding & Co.

Toronto-based RM is the dominant player at the high end. During 2007, it ran 17 auctions, selling approximately $250 million worth of cars and another $50 million in restorations, car sales and related activities. Revenue at its Arizona auction this year ($26.7 million in sales for 88 cars) was about 10% below 2007's level. "It's really a reflection of the kind of cars that come in," says Mike Fairbairn, RM's co-founder.

[Rich76_911s]

Part 2

1971 Plymouth Baracuda went for $396,000.
Both RM and Gooding employ British auctioneers, who eschew rapid-fire delivery and methodically work the room with their plummy voices, squeezing out the last nickel from bidders. Their audiences are well-dressed, relatively quiet and well-funded.

While RM always has a few top muscle cars, its forté is classic and sports cars. Its top sellers last month were a 1934 Packard 12 Coupe and a 1936 Mercedes-Benz 540K Special Cabriolet, each of which sold for $2.04 million; a 1929 Duesenberg Model J Dual Cowl Phaeton, which drew $1.76 million, and a 1963 Shelby AC Cobra, which brought $1.73 million. All of these prices include the 10% buyer's commission, plus the 8% sellers' fee.

While the prices sound great, all of these cars sold at or below the low estimate, whereas they might have fetched far more than that a few years ago.

The same was true for about half the 71 cars auctioned last month by Gooding & Co., a hot new house making its first appearance in Arizona. Buoyed by a record-making event last August in Pebble Beach ($61 million in two days, with 21 cars selling for $1 million or more), the three-year-old Santa Monica, Calif., outfit racked up $21 million in sales for 64 cars in Arizona, with seven going for $1 million or more.

Gooding also boasted the biggest sale of the week -- that of a 1959 Ferrari 250 GT California LWB (long wheel base) Spyder that was hammered down for $3 million, plus a 10% buyer's commission. Although this was below the presale price-range estimate of $3.5 million to $4.5 million, "it was a good price," asserts David Gooding, the company's CEO, whose father was a curator of the legendary casino-tycoon Bill Harrah's 1,000-car collection in Nevada before it was sold in the mid-'80s.

"If it had gone for $6 million, I would have been nervous. Irrational jumps can create a bubble," he says. And Ferraris of the past, like muscle cars of the present, certainly have seen bubbles, the most recent coming in the late 1980s. Back then, prices for top examples rose as high as $12 million. A few years later, they crashed.

"Back in the 'Eighties, I was selling cars to syndicates of dentists," says Mike Fairbairn, co-founder of RM Auctions. "Now we're dealing with very sophisticated collectors." Today's collectors, especially at the half-million-buck mark and up, usually arrive at auctions well-prepared with research. Most of the cars are known; forgotten gems discovered in barns are very rare. "These guys don't want just any Duesenberg, they want a particular one," Fairbairn observes.

Most of the cars auctioned at RM and Gooding, and about half of those that went on the block at Russo and Steele, bore a reserve price -- a price below which the owner isn't obligated to sell.

For sellers, this offers crucial protection. Barrett-Jackson is the only major auctioneer to sell all its consignments at no reserve. This means the seller must bid on his own car if the prices offered are too low for his liking. He then has to pay both the buyer's and seller's commissions (18%) to Barrett-Jackson. The no-reserve system works well in a seller's market, in which buyers are eager to push up prices. But it can be disastrous when sales slow, as they are doing now.

The Bottom Line:

The collectible-car market is in cyclical downturn. This should provide buying opportunities, but anyone interested in muscle cars should seek only the best. One category to avoid: "resto-mods."ALTHOUGH THE CURRENT weakness in the muscle-car market might be merely cyclical, some collectors wonder about the long-term prospects of these vehicles, given that there are an awful lot of them around.

Today's market and its participants could aptly be called "Old Toys for Old Boys." Buyers at the Arizona auctions were overwhelmingly 55-plus white guys. What happens when these guys go to the big garage in the sky and when there are no longer potential buyers who got their first driver's license when muscle and sports cars dominated the American road?

"They will be replaced by younger people who get interested when they get older and have some money," maintains RM co-founder Mike Fairbairn.

Not everyone is so confident, making this end of the market rather speculative.

The popularity of the auctions themselves seems to be rising. Barrett-Jackson's, in particular, are entertaining and exciting. But is the best place to buy a car a setting packed with high emotion, a noisy crowd and pressure to make a split-second decision?

After million-dollar-plus sales, the audience often applauds. "We have a saying in the business," says Oklahoma auctioneer Richard Sevenoaks. "Applause means someone paid too much."

[Macroni]

Scarcity and value are irrelevant of the economy. Artwork will still set new standards of value as true wealth is not impacted by the economy.

[Macroni]

so my 73 is a hedge. I wonder if my wife would buy that....

[budge96]

If true wealth is determined by those holding the greatest assets ..who is most affected by the downturn in an economy?
(ie: he who holds the greatest amounts of stocks,bonds,real estate,etc)

[Macroni]

Originally Posted by budge96

If true wealth is determined by those holding the greatest assets ..who is most affected by the downturn in an economy?
(ie: he who holds the greatest amounts of stocks,bonds,real estate,etc)

Reality in downturns the true wealthy are buyers not sellers. They are the ones in the position to take advantage of the distressed. Case in point Warren Buffett's recent bail out of the bond market.

[grudk]

Originally Posted by Luke Marano Jr

Reality in downturns the true wealthy are buyers not sellers. They are the ones in the position to take advantage of the distressed. Case in point Warren Buffett's recent bail out of the bond market.

A lot of wealth has been crushed lately in hedge funds, with plenty who were worth 100 million now worth 10 million. Sure, there is still a lot of money floating around, but not as much as there was. Not every wealthy man is a Warren Buffet when it comes to investing (and to my knowledge, he didn't bail anyone out, but offered to buy municipals at a STEEP discount, and was rejected)

http://www.iht.com/articles/2008/02/13/business/buffett.php

And as far as collectibles being a hedge, maybe. If you are talking about pedigeed RSRs, Ferrari racecars, etc. More mundane models? I don't think so, though I wish it were true.

Look to what happened to collector cars in '89. In inflation adjusted dollars, those peaks have not been touched to date.

[jurhip]

A lot of wealth has been crushed lately in hedge funds, with plenty who were worth 100 million now worth 10 million.

Crushed to 10 million. Looks like a future of ramen noodles and double shifts till they get back on their feet.

[trader220]

Rich great post thanks for that! Jurhip, I doubt you'll find many people who lost that huge a % in hedge funds on that size capital.

To answer the original question... IMO you're starting to see it now. Look at how many P cars for sale start with "financial situation forces liquidation of one toy" or some statement like that. The new models have taken a huge hit already and I suspect its spilling over into the older cars too, in all but the most collectable ones.

[real550A]

"plenty who were worth 100 million now worth 10 million."

True. I just checked and I'm not worth 100 million. Damn!

[grudk]

Originally Posted by trader220

I doubt you'll find many people who lost that huge a % in hedge funds on that size capital.

I guess it depends on what you mean by 'many,' but a huge amount of money has been lost, and it's getting worse. Conventional wisdom is that the wealthy are more 'sophisticated' investors, but there has been a lot of very bad judgement.

http://www.iht.com/articles/2008/02/29/business/hedge.php

[trader220]

Where I agree, is that a large amount of money has been lost, and lost in the sense its not coming back because the assets it was in can not recover. Where I don’t agree, is that any reasonable definition of the word “many”. The number of people who lost 90 million can probably be counted on 1 or 2 hands.

[grudk]

Fair enough, and I suppose 'many/plenty' is indeed hyperbolic. My main point was that the wealthy are not unscathed in the game, and I expect collectibles will fall in value with rare exception.

Rich's post and the auction data seem to suggest that collector car values are already in decline, even at the 'high end.' We'll know more after the next round of auctions this spring.

[Macroni]

I am not an expert but I seem to recall the 2007 BJ Auction featured a ridiculous number of recreations. SS454s, Hemi cudas, etc... this is the market that I see dropping like a lead balloon.

Buffett offer was loansharking.

[trader220]

I pretty much agree with everyone. The recreations and the restomods and even the real muscle cars were hot hot hot and their time will end at some point. The something happened with the exotics in the late 1980's. When I see the guy from Barrett Jackson on the TV makes me sick, I think he's done a great job in building a business but it looks to me like he's willing to bite the hand that feeds him for short term money. All the buyers and sellers fees, the obvious shill and owner bidding and the miles of crap they peddle at the auction have made it a circus that IMO will fall out of favor in the short run. That being the case I will be at the Palm Beach auction!

The true collectibles and very rare cars will always have value in my opinion. Maybe we should start a hedge fund that shorts the other cars and then when the economy really hits rock bottom in 2010 buys CDO's at pennies on the dollar.