Early 1990s crash of collector Porsche and Ferrari values...how did it happen?

[G60SuperCharger]

I was only 16 in 1990, so I wasn't paying attention to the collector car bubble going on then, but I was wondering about the circumstances that led to the huge losses in value suffered by Ferraris in particular and higher end collector cars like the Carrera RS.

The circumstances seem awfully similar to the run up in values we see today, except that easy money is inflating the bubble even higher than the late 80s value run-up.

For those who were aware of the market at that time:

1. Was it a fast crash (big auctions suddenly show lots of no-sales, etc) or more of a slown let down?
2. How were you first aware that values had started heading south?
3. Did it drag the lower tier collector cars up and down with it (like say Porsche 356s and Dino's)?
4. I keep hearing "It's different this time" and "They aren't making any more"...like real estate in 2006. Was this also the buzz in 1989?

Thanks in advance for the history lesson.

[billh1963]

The buzz was the same.

The one advantage of getting older (I was 27 when the crash started) is that you were around when it happened and see the same signs again.

The increase actually started after the market crash of 1987. People looked for tangible assets to put their money into instead of holding paper. Another contributor was Enzo's death. The Enzo era Ferraris' were being sold on nostalgia. Ferrari dealers were asking (and in many cases getting) $100K over sticker


So, when the crash started as we entered a recession, it wasn't instant. However, it was steady and quick. The first indicator was slower or non-existent sales of the big dollar cars. That was followed very quickly by a pretty fast and steady collapse (I distinctly remember this) of the market for mid-tier driver/project cars. I was into big Healey's at the time and remember my cars losing big value from one month to the next.

So, will there be a crash? Absolutely. Nothing is immune to business cycles. Will all cars be affected? Of course. Did they say "it's different this time" in 1990? You bet they did.

[trader220]

There was a huge run up in Ferrari’s in that late 80’s early 90’s period. IMO the biggest factor in turning that market around was the major global economic recession which occurred in the early 1990’s. I was currency derivative trader in those days.

To me the biggest difference is then you were talking about Ferrari’s which were already 6 figure plus and multiple 6 figure plus cars. That’s a very different economic level than a $20k car selling at $60k. The %’s can be deceiving ( like penny stocks). A Ferrari which was selling for $150k and now becomes a $450k car is already in a smaller buyer pool to begin with. When its $450k you’re paring that market down even more.

Having bought, enjoyed and sold a lot of air cooled 911’s over the last 20 years I think it sucks they’re climbing in price so much but… IMO the buyer pool will shrink on the move from $20k to $60k but even at the higher price level the demand is still far greater than for a $450k car. Without getting into the macro/micro economic theory of the markets.

Cars are rarely a good investment. When you start hearing them talked about as an asset class for investing, its probably a good idea to start shorting the market. Unfortunately there are no collector / classic car futures. That makes it pretty difficult to short the market. Although the % run up in the common 911 has been robust, baring a major global economic pull back (or meltdown yikes), I don’t think you’ll see a significant deflation in the price of the common 911. Some of the more rare models may have too much air in them now.

Take a nice driver g50 coupe with 90 to 120k on it. Three years ago you could pay about $20K ??? So now you have to pay $38k? ( roughly ) Could they drop back to $33k or even $30k ? Sure but we’re talking nickels and dimes compared to the $450k car losing the same %. These cars also get used to there are fewer and fewer low miles examples and more and more driver higher miles examples.

The iterations on market variances can go on forever.

[Mick_D]

I doubt my 1975 S will ever be worth $40K. $30k maybe, but not much higher. lso, I was in the money in the ate '80s and the basic 328GTB could be had for under $30k used. The 512BB was a lot more expensive. I sw a 328 priced at under $30K in the early 2000's too. Nowadays they are $65k and up.

[ficke]

I was 28 in 1990 but was not the best witness of the run up and crash.

1) fast, caught many people by surprise and a lot of people refused to believe it, there was a story about a guy who had a 308 Dino for sale for 60K and was only offered 50K for it after advertising for a month, then he lowered his price to 50K then only got offers for 40K, he would lower his price always late and eventually sold the car for 20K. Followed the market down. took about a year.

2)"Great deal" "should by now" became common words then after it was well under way the masses realized it was a crash and not a blip. then there was a wholesale dump. Prices fell below real market value.

3) oh yes, it started with just Ferraris then anything Italian, then any sports car, even Jensen Healy's doubled or tripled in price.

4)Yup.

[gshiwota]

I bought my first vintage Porsche (356) in 1991 and remember this time well. In addition to the points raised before, don't forget about the Gulf War. This military event brought further downward pressure on our economy.

Today I am most worried about a military event in addition to the run up we have seen lately as the catalyst to a decline in the market.

[xbrumossalesman]

Remember the term "Excess of the eighties" everybody had a gold Rolex and drove a Porsche or Ferrari - all went to hell when their 90 day note came due.

[Skwerl]

You can't have a bubble without a decently large contingent insisting "it's totally different this time!" Otherwise, people wouldn't be buying in to pump it up.

I found this graph and its explanation to be interesting and it seems to hold up:



https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/stages_in_a_bubble.html

[trader220]

Turn that chart upside down and relabel it for the price of Crude !!!!

We're close to the "new paradigm" area in crude IMO.

[rdwinelover]

It's easy enough to hedge by shorting S&P futures vs a cars value. In the end, these cars are only going up in value even after the inevitable reset of the global economy and with a long horizon view. I'm 41 so looking out 20 years, I could care less if they dump. I actually would probably buy another car.

[trader220]

rd,

I agree, with your long term assesment. I don't look at them as an investment. The current pricing curtails my ability to go from car to car because the risk in a $60k car is greater than the risk in a $25k car, when compared to the amount of capital I put aside for car enjoyment. From that perspective a sell off is welcome. That way I can roll into something else when I feel like.

As far as hedging my cars with SnP Futures>>>> No Way. If you want to be short the market then thats fine but shorting the market because you're long some cars probably isn't a good idea.

[rdwinelover]

Trader22, your right. Just buy Gold.

[trader220]

Yea I saw the inflation numbers released today were actually up a bit. Still.... I'll pass on the metals.

[pmax]

Originally Posted by trader220

These cars also get used to there are fewer and fewer low miles examples and more and more driver higher miles examples.

Yup, I see other Carrera/SC's out in the wild about once a week.

Long hoods, 930's , once a year not counting RR.

[Rick Brooklyn]

Disclaimer: THIS IS NOT INVESTMENT ADVICE!!!

You can find a long term collector with a big collection which includes liquid cars such as SCs or 3.2s, agree on a haircut and a table of conversion factors for mileage, reverse-repo a car from him for a year or other term of your liking, sell it spot, and then in a year's time buy another car (for cheaper, if you are right) and deliver it to the guy you borrowed it from. With rates still low, it might just work out

You should reach out to maninblack, surely he can be your asset lender.

[Mick_D]

Dangit, I just GOT a haircut!

[trader220]

Thanks Rich.... how about you make me a market in the reverse repo (swap), okay? You can make the market going in and getting out. If I end up not liking the market on the way out I can always deliver spot to cover. Oh and before you show me the market ... Can you tighten that up a bit, I have big size behind this paper if you can make me a nice tight market on this one.

Our pal maninblack is probably too busy running around trying to convince an audience of total strangers that he's wealthier and better looking than they are. Besides he wont even look at a buck or two he only looks at big size.

[omnivore]

A look at the demographics of buyers might be helpful. I see the current inflated prices centered around cars that boomers (a ginormous pool of buyers) want--911s, V8 Ferraris, Vettes, etc. When these guys go to sell in a few years who's gonna be buying, and at what prices? Will a gen-x or millennial pay 200 for an old 911 longhood? Doubt it, too archaic to resonate with them. I'm 54 so barely a boomer and no way will I buy a 911 at current prices--had several pre-run up. I'm buying newer collectibles at sensible money with the future demographics of the hobby in mind.

[Rick Brooklyn]

Originally Posted by trader220

Our pal maninblack is probably too busy running around trying to convince an audience of total strangers that he's wealthier and better looking than they are. Besides he wont even look at a buck or two he only looks at big size.

Your size is his size

[NYNick]

Why are we talking about a market 25 years ago?