Evolution of the Classic Car Market
Over the past decade, vintage cars have experienced an impressive surge in value, outpacing the growth of other luxury assets. According to Knight Frank’s 2023 Wealth Report, vintage cars have experienced a staggering 185% increase in value, second only to rare whiskies. This growth has outpaced the performance of luxury rivals such as wine, watches, and art, making classic cars a highly attractive investment option.
The classic car market has expanded beyond collectors to attract a broader investor base. Investors seek the high returns and diversification benefits that classic cars offer over traditional assets such as stocks and bonds. A new generation of investors who are aware of the financial potential of owning classic cars has joined the enthusiasts.
A Wave of Investment in Classic Cars
Mega-deals and record-breaking auctions are examples of the increase in interest and investment in classic cars. In 2018, a Ferrari 250 GTO became the most expensive car ever sold at auction, fetching a staggering $48 million. A 1955 Mercedes-Benz 300 SLR Uhlenhaut Coupe, however, quickly surpassed this record by selling for an astonishing $149 million.
In general, the most popular classic car brand sold at auction is Ferrari, such as the 1957 Ferrari 335 Sport Scaglietti, which sold for $35 million in 2016, or the 1956 Ferrari 290 MM, which sold for $28 million. Ferraris were in the lead in 2021–2022, with an average auction value of $589,000, ahead of Mercedes-Benz vehicles at $378,000 and Porsche vehicles at $348,000.
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These mega-deals represent the vanguard of the billions of dollars spent annually on classic cars worldwide. Investors are flocking to this alternative asset class, recognising the potential for substantial returns and the allure of owning a piece of automotive history. The classic car market has become a thriving industry, attracting not only collectors and enthusiasts but also savvy investors looking to diversify their portfolios.
Classic Cars as a Financial Asset Class
The financial industry has taken note of the growing importance of classic cars as an investment asset class. Asset management firms such as Italy’s Azimut have recognised the track record of classic cars and the potential they hold within investment portfolios.
To meet this growing demand, asset managers have begun to offer funds dedicated to classic cars. Azimut, for example, is launching the world’s first evergreen fund dedicated to investing in classic cars. This fund will exclusively target cars with a value of more than 1 million euros each. Similarly, Swiss asset manager Hetica Capital will launch a 50 million euro closed-end fund in 2021, targeting returns of 9% to 15% after seven years.
Challenges and Considerations for Investors
While investing in classic cars can offer lucrative returns, it is not without its challenges and considerations. One such challenge is the high barrier to entry, with minimum investment amounts often in the hundreds of thousands of dollars. This exclusivity limits the market to a select group of high-net-worth individuals.
In addition, maintaining and preserving classic cars can be an expensive proposition. Running costs, including storage and insurance fees, can easily amount to 5–6% of the portfolio’s value annually. Finding qualified mechanics to service and repair these vintage vehicles can also be a challenge, further increasing maintenance costs.
Investors should also be aware of the risks associated with investing in classic cars. The market can be volatile, subject to fluctuations in demand and changing trends. A car’s condition, provenance, and rarity all have a significant impact on its value, so thorough due diligence is essential before making any investment decisions.
