Classics Seem To Be Investment of Choice In Hard Times
|   Tuesday, September 30, 2014
Adam Smith was a brilliant thinker and he didn't have a computer to help. Of course, the computer is a relatively recent development and Smith came up with his ideas on "political economy" at the end of the 18th century.

And, even though colleges, universities and think tanks the world over are heavily invested in "the cloud" and other forms of computing, they still cannot discount the fact that Smith was right about how an economy works (if you have a scarce item its price will rise, while if you have big supply of the same item, the price will fall).
He was also bright enough to realize the corollary to these supply and demand theory which is that gold trumps the laws of supply and demand.

What this means is that in good times the laws of supply and demand work reasonably, however, when the times turn tough people of means want a sure investment that won't lose value. Traditionally that hedge has been gold as the precious metal maintains its intrinsic value despite the troubles. Great art has been another investment that maintains its value or its value grows. Today, gold and art have been joined by another investment that either retains its intrinsic value or grows in value even as times turn rough, very rare classic cars.

At this month's Pebble Beach Concours d'Elegance, for example, a rare Ferrari GTO Berlinetta set a record for cars sold at auction with a sale price of $38.1 million. What made this car so special that it attracted so much interest that a bidding wore broke out near the end, according to reports in Yahoo's Motoramic, where the final bidders essentially turned the auction into a game of bid ping-pong, going back and forth in $50,000 increments until the final price was reached and the auctioneer's gavel slammed down with the word "sold?"

The answer is that this Berlinetta is one of only 39 made. The one sold at auction was number 19 and by the end of its life as a race car for the Ferrari team, the Berlinetta was a race-proven veteran that was ready to be put on a pedestal and ready to be housed as part of someone's collection. Its former owner made a nice profit after fees were paid to Bonham, the auction house that ran the auction at Pebble Beach, and the concours.

And while the Berlinetta GTO did set an auction record, it is not the world's record price for a vehicle. A recent private sale set a record of $52 million. The sales was for a rare Ferrari 275 of which only four are known to be in existence.

That is the key to the increasing price of cars as an investment. The rarer the vehicle is the more it will cost and that gets back to Adam Smith's supply and demand theory. It is the basis of all modern economic though with embellishments from more modern economists. Yet, no matter how accomplished the economist, he or she has been unable to find a better explanation for both macroeconomic (how economies perform at high levels) or microeconomics (the low level side).

In relation to cars and investments, last year's Pebble Beach Concours reportedly pulled in more than $310 million in rare cars bought for investment, while this year's ended up pulling in more than $400 million.

Maybe the gold rush into rare vehicles began in the 1980s when collectors discovered the rarest of rare coach-made vehicles, the Bugatti's Royale, reportedly made for the former king of Siam (now Myanmar). There were only eight of the handmade vehicles built, all using the Bugatti chassis. The coachworks added on very opulent bodies and interiors and returned them, instantly turning them into classics.

The Royales ended up in private collections and there have only been two that have surfaced in the last 25 years that were sold at auction and the price that was paid, at the time, made them the world's most expensive cars. At last report, the most expensive Royale realized a $25 million price at auction. Private sales are unknown.

Now it seems to be Ferrari's turn to be on the "hit list" of private collectors. Private collectors are usually people of excellent means who look for the best hard assets in which to place their money. For some it is art, for other it is still gold (not a bad deal today, if they had invested 15 or 20 years ago as gold has increased from the former US standard of $35 per troy ounce to over $1,400 per troy ounce, about 40 times the initial investment), while other prefer vintage bikes and others prefer vintage planes (imagine the price of a used WWII B-17A or B, the first editions of the plane; there are only one or two left of the thousands that were built) and the list goes on and on.

Pebble Beach barely lifted the curtain on the values people put on various hard items that they believe will hold their value. Classic cars or vintage race cars are now their items of choice and price have skyrocketed.
PHOTO GALLERY
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