Investing in classic cars

If taking a drive down memory lane in a true status symbol that may just bring you a nice financial windfall in the future appeals to you, then investing in a classic car may be just the ticket you have been looking for.

It is a well-known fact that most cars depreciate at an alarming rate, and that, as soon as you have driven your shiny new acquisition with that new-leather smell off the showroom floor, you have already lost money — try offering it back to the dealership once you have driven it around the block if you doubt this statement. According to industry experts, a car loses, on average, 25% of its value every year, and the days where you could buy a new car and trade it in 5 years later for what you originally paid for it are long gone.

However, like art and fine wine, certain vintage automobiles can provide a good diversification of your investment portfolio, away from the usual suspects such as equities, bonds, and cash. According to Norman Frost of Frost Brothers, a classic and vintage car dealer in Knysna, more South Africans have been buying classic cars over the past number of years, especially the leaders of industry who have unallocated funds with which to speculate. Frost says that, although the main motivations for these purchases are nostalgia and the prestige that comes with owning a classic car, the fact that the chosen vehicle may increase in value definitely plays a part in the decision.

Roy Limbeek from Classic CarSource, a company that supplies and sources vehicles for export and the local market, agrees: “Who would not want an appreciating value asset? I would, however, say that there would be a very limited number of clients who would look at a classic car exclusively as an investment. Most clients would prefer to love, polish and drive them!” says Roy.

Roy explains that, when someone approaches them to purchase a classic car, they need to specify what kind of vehicle they want and for what reason: “You would probably need specialists like us to help if you want to purchase a ‘high-end’ vehicle, as we also offer valuation services. If you want to purchase a vehicle for investment purposes, you will obviously need to get the right car at the right price. If you purchase an overpriced car, your investment will not grow in the short term, as it will take time for the market to get up to the level of price you paid.”

Roy warns that potential buyers need to be aware that, unfortunately, there are some ‘lemons’ in the market place, and that they need to insist on some form of vehicle history before making a purchase. “Use a reputable company for purchases — the price might be a bit more, but rather get peace of mind,” is Roy’s advice.

What makes are the most popular for investment purposes? Roy says that cars that are driven daily, like Triumph, MG and VW, are entry-level cars that generally hold their value and appreciate at lower percentages, while brands like Porsche, Ferrari, Aston Martin and Rolls Royce are more expensive but offer good investment opportunities if you can acquire them at the right price.

The emergence of the Historic Automobile Group International (HAGI) Top Index, which tracks the values and movements of the top 50 prime movers in the sector, has been a boost to the investment car market. Managed by car enthusiast and former financier Dietrich Hatlapa, the HAGI uses rarity, value and a community of buyers as its coordinates. The stated purpose of the initiative is to improve transparency in the sector and create the initial foundations for an investment infrastructure into this long- established area of ‘passion’ investment.

Hatlapa authored a book on the subject, called Better Than Gold: Investing In Historic Cars. Hatlapa, however, adds the following proviso to the book’s title: “If you have a diversified portfolio, then owning a classic car is a good complementary investment, provided you like that sort of thing. We would never advise anyone to sell their stocks and shares and buy a classic car instead.”

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.