alternative asset class investments: the case for classic cars

Transcription

Work-in-process & draft document only.
Subject to change without notice. ALTERNATIVE ASSET CLASS
INVESTMENTS: THE CASE FOR CLASSIC
CARS
BY
MICHAEL A. MISCHE
ADJUNCT PROFESSOR OF MANAGEMENT, UNIVERSITY OF
SOUTHERN CALIFORNIA, MARSHALL SCHOOL OF BUSINESS
And
MARC J. SPIZZIRRI
CEO, BLUE CHIP MOTORCARS, LLC, SAN JUAN CAPISTRANO, CA.
JANUARY 23, 2014
ABSTRACT
Collectable cars of a certain vintage and proper quality that possess the appropriate provenance and
pedigree have proven to appreciate in value over time. In certain instances, classic cars have
outperformed traditional measurements such as the S&P 500, commodities, and the DJIA. Collectable
cars of the proper vintage and quality may provide investors with an opportunity to own “alternative
class” assets and participate in both the excitement of ownership and any potential financial performance
in the form of appreciation in value and price. This paper discusses many aspects of collectable cars as an
alternative asset class. In this paper, factors such as demand, supply, demographics, and individual autos
are examined, as well as the financial performance of collectable cars relative to certain commonly used
market measurements and the widely acknowledged HAGI Index. Key words: “alternative asset class,”
“alternative assets,” “Historic Selecta,” “Classic Car Auction Yearbook,” “Credit Suisse,” “collectable
automobiles,” “collectable cars,” “muscle cars,” classic cars as investments,” “vintage automobiles,”
“HAGI Index,” “Michael Mische,” “Marc Spizzirri”, “Adolfo Orsi,” “Raffaele Gazzi.”
ACKNOWLEDGEMENT
NOTICE AND DISCLAIMER
©2014. M. A. Mische & Marc Spizzirri.. CONFIDENTIAL & PRIVATE. Not for public distribution. All rights reserved. Not a solicitation
for the sale of any stock or security or financial instrument of any kind.
1 Work-in-process & draft document only.
Subject to change without notice. This document is a work in process and represents solely the opinions, research and
conclusions of the authors. This document is intended for discussion, commentary and
information purposes only and is not intended to provide any investment, tax, or legal
advice or services. This paper does not in anyway reflect and/or represent the opinions,
interests, or position of the University of Southern California. This paper may be used,
copied and distributed for discussion, educational and informational purposes only, with
proper attribution to the authors, and permission is hereby granted by the authors for use
as indicated. The authors reserve all rights. This document is a working draft only, is
subject to change, and may contain errors and omissions of facts, data sources,
attributions, and computations of a material nature. In no manner or form is this
document intended to solicit or is a solicitation for any investment or inducement to
invest in any financial instrument or investment transaction, nor does this document and
its authors provide any financial, legal, taxation or accounting advice. Readers are
advised to carefully consider all statements, representations, data, citations and sources,
attributions, and calculations, seek competent and qualified advice and to perform their
own due diligence before placing any reliance thereon or drawing any conclusions there
from the material contained and discussed herein.
The authors acknowledge and thank Historical Automotive Group Index (HAGI),
Historical Selecta, Credit Suisse, Bloomberg and Classic Car Auction Yearbook as the
primary data sources for values, performance and information and as the primary
sources for automobile pictures depicting appreciation and values. Certain photos of
other automobiles are “stock” pictures commonly available on the Internet through
Google Images.
©2014. M. A. Mische & Marc Spizzirri. All rights reserved.
Subject to change without notice. SELECTED RESULTS
JANUARY 2014
BARRETT - JACKSON
SCOTTSDALE RESULTS
Source: Barrett-Jackson at http://www.barrettjackson.com/application/onlinesubmission/topsales.aspx?aid=525&sd=01%2f14
%2f2014&ed=01%2f19%2f2014.
Subject to change without notice. 1.0
INTRODUCTION
1.1
Historical Perspective
1.2
Defining the “Vintage Classic Car” Segment
1.3
Financial Performance and Valuations
1.1
Since the first cars appeared in Europe in 1885 (Daimler Benz), few inventions have changed the lives of
humans, as has the automobile. The automobile has made humans more mobile, more social, more
communicative and more affluent. From less than 5,000 handmade cars in 1900 to over 60 million mass
produced cars in 2012, the automobile is not only essential to the human experience; it’s a barometer of it.
In the modern economies such as the US and Europe, there are 700 cars for every 1,000 people. The
automobile has grown to become more than just a means of transportation…for many people the cars they
own and drive define a lifestyle, make personal statements and contribute to the self-esteem of their
owners. The passion and love for certain types of cars transcend generations, social status, gender,
nationality and genetics. Cars are for many people, a unifying force, if only for a few minutes a day.
For most people, the acquisition of an automobile represents the second largest investment that they will
make after buying a home and for many people the car is as equally a sense of pride and social status as
are their homes. The automobile represents far more than the marriage of parts, steel and technology, it is
single handedly responsible for the migration to the suburbs, the mass movement of people across
America, the motel industry, the roadside diner, countless miles of highways, bridges and interstates, the
emergence of shopping centers and malls, and the core to growing a middle class, consumer based
economy.
The early cars were custom built, mostly crafted by coach artisans and eccentric, if not genius inventors.
It was not until 1893 that the US saw the first commercially produced automobile available for public
consumption. From the crudely built early cars, which were mostly cobbled together from wooden wagon
parts, to the finely hand built carriages of the 1890s, to Henry Ford’s revolutionary breakthroughs in mass
production of the Model T, to Alfred Sloan’s genius of annual design changes, the automobile has
become a milestone in human history and, along with the propagation of electricity, one of the defining
mainstream and life changing technologies of the 20th Century.
The iconic Ferrari 365 GTB/4
“Daytona” was built from
1968 to 1973 and was equipped
with:
A 4.4 liter front mounted V-12
engine.
352 horsepower with a top
speed of over 150 mph.
Only 1,284 were built in 3
variants.
(Source: “Classic Car Auction Yearbook,” & Historica Selecta.)
Few manufactured items evoke such an emotional response and move the human spirit more than
automobiles of a certain class and vintage. The exotic and provocative lines of a Ferrari parked on Rodeo
Drive always spark stares and comments and a sense of wonderment about the lifestyle of the owner. The
sight and sound of a finely tuned Aston Martin moving briskly past an SUV conjures up images and
Subject to change without notice. views of “James Bond” and the ultra-sophistication of the British. The stripes, scoops and exhaust
rumblings of an iconic American “muscle car” such as a 1969 Mustang Shelby GT 500KR or 1970
Plymouth Barracuda 440, jolts the memories of many a “baby boomer” as much as the brute horsepower
under their hoods.
1970 SHELBY GT 500KR
The legendary Shelby GT 500 KR
(King of the Road) ruled America’s
streets from 1965 to 1970. The 1970
was equipped with:
Power front disk brakes.
Internal roll bar.
A 428 cubic inch Ram Air Super
Cobra Jet engine with aluminum
components producing 375 hp.
Special suspension system.
The car is an “event” and a moment in the American lifestyle
and history of a nation. Visit Pebble Beach in August or Amelia Island in March of each year and you’ll
walk along cars that are considered by many to be pieces of rare art and living history, reflective of the
state of the art in engineering for their era and pride of the people who built and drove them. Attend the
Barrett-Jackson auction in Scottsdale, Arizona in January and you’ll have a more difficult time arranging
for a place to park your private jet than you will reserving a hotel room.
With the proliferation of televised events and consumers becoming more comfortable with searching and
buying via the Internet from every corner of the globe, interest in and the business of classic cars has
proliferated and expanded greatly. Whether classic cars are growing in popularity because of a nostalgic
connection to a different time; an appreciation for timeless and artistic designs; enhanced familiarity with
vintage cars through television and media broadcasts; the camaraderie of attending classic car events; or
the outstanding potential for investment appreciation; there is a favorable and exciting financial
component to this asset class.
Understanding supply, demand, pricing, values and other factors affecting valuation is complex. Unlike
public companies, there are no 10-K filings and annual reports. There are no auditing requirements and
standard disclosures. The market is complex, fragmented and subject to emotion. Perhaps the most
recognized and definitive guide to prices and values is the “Classic Car Auction Yearbook,” (“HSYearbook) published by Historica Selecta and sponsored by Credit Suisse. Complied by Adolfo Orsi and
Raffaele Gazzi, the HS-Yearbook guides perhaps the most complete representation of sales, auction
results, prices and values available for this marketplace, and for purposes of these authors, it is considered
the definitive guide. Additional examples of sources for of historical values and sale prices include local
auctions, NADA, Sports Car Market, Ferrari Market Letter, specialty car clubs such as the Mustang Club
of America, Mecum Car Auctions, and the highly regarded Concours d’Elegance, such as Pebble Beach,
Amelia Island and Monaco.
Defining the “Vintage Classic Car” Segment
“There are no two classic cars absolutely identical in the world,” notes Adolfo Orsi and Raffaele Gazzi,
of Historica Selecta. Each car, like those who built and drove them, is unique, possessing their own
“DNA” and signature qualities and personalities. The touch, feel and sound of a classic car evoke not just
sight and imagination, but all of the senses in a way that moves the spirit. There many different
definitions for “classic car,” and there is no single de facto definition of “vintage classic car.” Rather,
there are a number of various definitions. There are, however, some similarities among definitions and
experts.
Classic cars of “vintage” caliber and supply are identified in a similar way to other cars. Typically, cars
are organized and placed into various segment classes based on manufacturer, the model, and the year that
they were manufactured. There are several different classification methods and some makes and models,
such as the Ford Mustang and Chevrolet Corvette have their own specific classification groups. One of
the more widely used classification methods is from the Vintage Car Collectors Association. This
method, which is summarized below uses six classification segments.
Vintage Car Collectors Association Classifications
•
•
•
•
•
•
1890 to 1904:
1905 to 1918:
1919 to 1930:
1931 to 1945:
1946 to 1964:
1965 to 1974:
Antique
Veteran
Vintage
Post Vintage
Classic
Post Classic
(Source: “Classic Car Auction Yearbook:
2011-2012”.)
(Source:”
Classic
Car Auction Yearbook,” & Historica Selecta.)
For purposes of this work, a practical working definition of the vintage classic car segment is:
“Cars ranging from the early age of automobiles (Antique Period), to the
golden age of pre-World War II automobiles, to the roar of the American
“muscle” cars of 1960’s and mid-1970’s (Post Classic Period), that have
demonstrated or have the potential for significant appreciation in value and
desirability.“
Cars of this vintage, quality and class are, by example, typically composed of vehicles spanning the
Antique to Post Classic Periods. These cars include, but are not limited to, the early Fords, exotic
Europeans including Ferrari, Aston Martin, Rolls Royce, Porsche, Mercedes Benz, Bugatti and Bentley,
and to the great American marquees like the Duesenberg, Cord, Tucker, Cadillac, Chevrolet Bel Air, and
Chrysler Imperial, Oldsmobile 442 W-30, Camaro Z28, Pontiac GTO, and the iconic Packard Phaeton, to
list just a few examples. Values for these cars have demonstrated considerable long-term appreciation. By
example, a 1970 Mustang Mach 1 that originally sold for $4,3700.00 can sell for $165,000, today with the
proper provenance and with proper market conditions. A 1960 Ferrari 250 GT tops $5.0 million today and
1962 Ferrari GTO (Limited Production) can sell for $35.0 million.
THE MARKET FOR VINTAGE CLASSIC CARS
2.1
2.2
Market Size, Drivers of Demand & Values
2.1
There has always been a market for vintage classic cars. Certain cars always appeal to the nostalgic
sentiments of many by representing themselves as timeless pieces, moments of time in a life, or an era,
and in certain instances, touch points to
simpler times. The allure of cars is trans
generational. Indeed, each generation has
its sentimental favorites. In the 1960’s
and 1970’s, members of America’s
“Greatest Generation” were seeking cars
of the 1940’s and 1950’s. In the decade of
2010, Baby Boomers are aggressively
acquiring cars of the muscle cars of
1960’s and 1970’s. X and Y Gens are
beginning to acquire cars of the
“resurgent” cars of 1970’s and 1980’s.
And affluent collectors, aficionados,
museums, and trusts continue to covet the
masterpieces from the “Golden Age” of
cars from the 1920’s and 1930’s.
(Source:” Classic Car Auction Yearbook,” & Historica Selecta.)
The market for vintage classic cars has evolved from early stage collectors, hobbyists, and “eccentrics”
interacting in local markets and mostly in small, elite groups, to a global market of collectors who are also
investors. In early years, it is safe to say that interest in vintage classic cars was largely “aristocratic” and
predominantly reserved for the wealthy that had the money to acquire then and the resources to locate
them. Access to the market in the early phases was largely “private” and usually involved informal
gatherings of wealthy friends. As the car evolved, became more prevalent and supply grew and incomes
rose among an ever-growing middleclass, the market evolved and changed.
1930 CADILLAC PHAETON
Few cars evoke an era of style and sophistication
of affluence in America of the “Roaring 20’s” as
the 1930 Cadillac Phaeton. Designed by US
automotive legends Larry Fisher and Harley Earl
after extensive travels throughout Europe, the
1930 Cadillac Phaeton was the pinnacle of
automotive style, engineering and design for its
time. Powered by a V-16, 452 cubic inch engine
and priced at $6,650, the car was released three
months after the stock market crash of 1929.
Fewer than 2,100 units were produced.
Subject to change without notice. With WW-II behind, the 1950’s saw an emerging interest in “hot rods” and pre-WW II classic cars. By
the 1960’s and into 1970’s, the markets for vintage classic cars became more formal, auctions became
“public” and car clubs, which are important forms of socialization and networking, emerged. In the
1990’s and into the early 2000’s, the availability of easy credit and liquidity, usually in the form of home
equity loans, helped to further propel the growth in the interest and market for these vehicles. Today,
Credit Suisse estimates that there are approximately 10 million vintage classic cars of investment and
collector quality in the world today. Of this, 3.5 million are estimated to be located in the US (Credit
Suisse, 2012).
The evolution of the classic market can best be appreciated and represented by five stages of growth and
development. As depicted in Exhibit 2.1 (below), each phase is marked by a unique set of demographics,
buyer dynamics, increasing values, and increasing supply and advances in technology. Essentially,
advances in technology, accompanied by increasing affluence and the availability of the cars as an
alternative investment, have facilitated the advancement of the vintage classic car market and the
cultivation of behaviors into a global marketplace, reflecting both higher values and greater demands.
EXHIBIT 2.1
FIVE STAGE EVOLUTION OF CLASSIC CAR MARKET
1950-1980
EXCLUSIVE
COLLECTORS
Private Markets Mass Fragmentation Traditional Media Pre1950
Informal Valuations ARISTOCRATIC
Limited Access, High COLLECTORS
Wealth Aristocrtic "Collector" Hobbyist •
1981-1995
COLLECTORS
& HOBBYISTS
Local & Regional
Markets
Traditional Media
Fragementaton
Growing Supply
Growing Interest
More Formal
Valuations
Emergence of
Specialized
Auctions
Dominated by
Collectors and
Hobbyists
1996-2005
ENTHUSIASTS
&
COLLECTORS
2006- PRESENT
INVESTORS &
COLLECTORS
National & Regional
Markets
Greater Supply of
Muscle Cars
Consolidation
Technology Enabled
Less Fragmented
Creation of EU and
Euro Standarized
Pricing
More Demand
Emergence of Internet
Created More Supply
and Greater Access
Internet Faciliated
More Rapid
Dissemination of
Information
Emergence of
Televised Auctions
and Events
Dominated by
Collectors and
Enthusiasts
Global Markets
Internet & Mobile
Social Netwroking
Emergence of Mega
Auctions
Greater Awareness
and Interest Among
Investors
Greater Access to
Funds
Outperforms Other
Asset Classes
Emergence of the
INVESTOR/
COLLECTOR Class
Establishment as an
Alternative Asset
Class
Pre 1950 Aristocratic Collectors. During the very years, few records were kept as to volumes
and values, but it doesn’t take a leap of faith too large to envision informal gatherings of
America’s most wealthy to look at handmade cars and cars that were exceptionally exotic and or
advanced for their time. During these early years, collecting was restricted to a tight community
of affluence individuals who had the resources to locate rare cars and the funds to purchase them.
Subject to change without notice. •
1950 to 1980- Exclusive Collectors. The initial years are best described as the 1950 to 1980
period. During this period the market for these assets was largely:
o
o
o
•
1981 to 1995-Collectors & Hobbyists. The second stage of this market is best characterized as
being regionalized. During this period the growth in this market was fueled by a number of
factors, including a growing awareness as to the increasing values of the cars and a demonstrated
demand for the asset. The “collectability” of the cars, as an appreciating asset was established and
more formal markets emerged for the buying and selling of the cars:
o
o
o
o
•
Markets evolved to local and regional.
Collector’s clubs and associations became more established and mainstream.
Emergence of specialized auctions as channels of distribution.
Growing interest in “muscle cars” and growing supply of cars and buyers.
1996 to 2005-Enthusiasts & Collectors. The 1996 to 2005 period is best described as a period of
rapid transformation in this market and one that solidified the market as both robust and
sustainable. Through a combination of technology, affluence, demographics and growing interest
in these types of vehicles the “market” for vintage classic automobiles became national in scale
and reach. Access to cars of value and price ranges was only a few keystrokes away.
o
o
o
o
•
Private and localized markets available to high wealth individuals.
Still forming with respect to the quality of cars desired asset values and marketability.
Valuations were largely subjective, informal and highly volatile.
Markets evolved from regional to national.
Proliferation of the Internet and access to information and inventories.
Sales events were larger scale and emergence of televised events.
Emergence of European sales channels and EU countries.
2005 to Present-Global Collector & Investor Market. The current period of this market is
undeniably characterized as one that includes the “global investor.” The classic car market of
2013 is one that is technology enabled, socially networked, and composed of not only affluent
investors, but also middleclass and middle income investors who are seeking alternative
investments to the traditional equity markets. During this period the market expanded in scope,
awareness and dollar volumes by specialized television and Internet broadcasts of auctions, car
shows, car events, and the establishment of the “mega-auction” by such firms as Barrett-Jackson,
Gooding, RM Auctions and Mecum. Specifically:
o
o
o
o
o
o
o
Emergence of national and global markets.
Technology enabled with a high social network component.
Greater access to purchase funds.
Emergence of buyer’s “buyer” as subject matter experts.
Emergence of Collector/Investor.
Validation as a legitimate “asset class” of investment quality.
Outperformance of traditional markets such as S&P 500, Dow and Gold.
2.2
Market Size & Drivers of Demand & Value
Estimating the overall market is imprecise as the value approximations do not include sales for segments
of ancillary segments such as: transportation of vehicles, NOS (New Old Stock) and replacement parts,
Subject to change without notice. restoration services, insurance and financing, merchandise, and the value of cars that are under
restoration. Additionally, most estimates do not include an accurate accounting of the inventory for cars
that are in storage or in smaller private collections scattered throughout the world that are not in the
market. Cars such as these are unknown to the “market.” If the collective value of these services, products
and activities were included in any “aggregate” estimate of classic vintage cars, then the market size for
this class of asset would be significantly larger. An additional consideration affecting values and pricing
involves auction values, which are usually lower than those of private collectors due to a number of
factors, chief among them is provenance and most cars are sold with “no reserve,” which is a minimum
amount set by the seller that must be met before the car is sold.
According to Historica Selecta and the Classic Car Auction Yearbook, it is estimated that there are
approximately 10 million “vintage collector cars” representing almost all categories of cars representing
an estimated market value over $120 billion available in the global market in 2012. Ferraris represent the
largest component, with that overall market estimated to be approximately $6.0 billion.
There are many factors that combine to drive demand for classic cars. Certainly, liquidity and financing
are major influences, but so are sentiment, supply and desirability of the car. The changes in the market
and the growing popularity of vintage classic cars as an appreciable asset class are, like any investment
market, subject to the emotions, psychology, economics and the typical dynamics and cycles of supply
and demand. In general, the market is driven by a combination of six primary factors:
1. Individual collector/investor motivations such as nostalgia, desire, pride,
emotional attachment and ownership satisfaction.
2. Investor/collector financial considerations, such as pricing, and the potential for
growth, capital appreciation, portfolio diversification and profitability.
3. The economic value of the assets themselves including, capital appreciation and
liquidity in the form of selling.
4. The supply and demand of cars of a certain vintage and quality.
5. Personal preferences for the car.
6. The provenance of the car and its pedigree with respect to prior ownership, care,
maintenance and authenticity.
Collectively, these factors can combine to make the market for vintage classic cars more discriminating,
more robust, more accessible and more attractive as a possible alternative asset investment class.
Lamborghini Miura
Considered by many as one of the “sexiest cars
of the late 1960’s, the Miura still draws stares
today…
Built 1966-1972, only 764 were produced.
V-12 engine with 350-380 horsepower.
Top speed was 171 mph with 0-60 in 6.7 seconds.
Subject to change without notice. As Credit Suisse’s ‘Compass’ notes, four of the ten most expensive cars sold at public auction have been
purchased since the global financial crisis of 2008. Exhibit 2.2 below summarizes the values for the top
10 most expensive cars sold at auction according to “Classic Car Auction Yearbook”:
EXHIBIT 2.2: TOP 10 MOST EXPENSIVE CARS SOLD AT AUCTION
The popularity and values of certain highly sought and coveted cars have a documented history of
increasing year after year after year. The economics and investment dynamics of these highly desired cars
are simple: popularity is growing, demand is expanding, the supply is fixed and at times, diminishing and
values increase. Another factor contributing to the increase in demand and the raise in valuations is the
creation of “new wealth” that is centered in Asia and Eastern Europe. Shelby Myers, managing director of
the west coast operations for RM Auctions observed, “There’s a lot of new wealth being created in
emerging economies, and those collectors are starting to come on.” The panache and exclusivity
notwithstanding, the market has extraordinary broad-based appeal. Events are well attended and highly
publicized. As David Gooding, CEO of Gooding & Co. noted, “You can sit in them, you can fire them up
and hear their sounds. People really get emotional about cars.” Demand and values will change, but the
overall, long-term trajectory continues to be upward.
The market values for vintage classic cars fluctuate based on supply, demand and liquidity, and can be
volatile. The market has cycles and is subject to investor sentiment and collector emotions. As with any
market, there are risks. Opportunities for the greatest appreciation may be found in cars that were
produced in limited quantities, possess some of the attributes listed above, and have an interesting
Subject to change without notice. ownership pedigree or history of performance and/or award recognition. Vintage classic cars of
collectible value have continued to appreciate in spite of poor general market conditions and are the most
desired.
Like any equity or debt instrument, the individual value of a car of this asset class can and will vary.
Some years, specific models are more attractive and therefore in greater demand than in other years.
However, unlike equities and debt instruments, the number of vintage classic cars is relatively fixed. That
is, where companies such as Apple and Google can always issue new stock, there are only so many
Ferraris, so many Shelby Cobras, and so many 1936 Cadillacs available. Where equity is “paper” and
often overvalued with “goodwill,” the classic vintage car is tangible and a physical asset, it’s not “going
to declare bankruptcy.” The classic car is not going to come under SEC investigation for accounting
irregularities or become suspended or delisted due to insider trading. Historically, the limited supply has
been measured against steadily increasing demand. Thus, values, from an investment perspective reflect
an overall upward trajectory over the longer term. The assets of this class are tangible, physical and
literal. They have personalities, they make sounds, they are fungible, and they move the spirit.
MERCEDES BENZ 540K SPEZIAL ROADSTER
“Sensual,” “stunning,” and “majestic” are words commonly associated with a Mercedes Roadster from the 1930s. Perhaps no car captures the spirit of Europe’s “inter-‐war years” as the Mercedes Benz 540K. Built between 1936 -‐1939, only 419 units were produced. Some of the finest examples are usually found in the 1936 and 1939 versions. ©2014. M. A. Mische & Marc Spizzirri.. CONFIDENTIAL & PRIVATE. Not for public distribution. All rights reserved. Not a solicitation
Subject to change without notice. With sweeping lines and art deco fender flows, the “Spezial Roadster” is a very special car that was crafted to the highest and most exacting standards of Mercedes Benz and Sindelfigen Sonderwagen coachbuilders. The car’s look and stance still command respect and move the spirit today as it once did when it traveled the roads of Europe long ago.
FINANCIAL PERFORMANCE OF CLASSIC CARS
There are multiple methods available for reporting the estimated values, historical prices, and recent
transaction values/prices, as well as the overall financial performance of classic vintage automobiles. An
often-cited source for this measure is the “Classic Car Auction Yearbook,” which is sponsored by Credit
Suisse. The NADA (National Automobile Dealers Association) is another recognized source of values
and volumes. Other sources include Sports Car Market, Gooding & Company, RM Auctions, and many
others. For the 1995 to 2012 period, the volume and value of classic cars auctioned increased 1,119%
from $41 million in 1995 to over $500 million in 2011. Historica Selecta reports that for 2012, the total
value of auction sales, which represents a fraction of total vintage classic car values, was $610 million.
Overall market estimates place the total worldwide market for vintage classic cars at approximately $120
billion (Historcia Selecta). According to Adolfo Orsi and Raffaele Gazzi of Historica Selecta, the gross
value of auction sales expanded by 20% in 2012, with the average car increasing 15% in value.
A highly regarded method for measuring the value and historical price performance of vintage classic
cars is the Historical Automotive Group Index (HAGI). Developed in Europe by former ING Bearings
managing director, Dietrich Hatlapa, the “HAGI” is a statistical method for determining the financial
(value) performance of historical classic cars. The HAGI is composed of four specialized indices, each of
which is designed to measure a particular value point and determinant.
Approached systematically and with discipline, vintage
classic cars have the potential to operate and behave as an
“alternative asset class” investment. Historically, as
indicated in Exhibit 3.1, certain combinations and classes
of investment grade classic cars have outperformed
equities and commodities.
The HAGI is composed of four specialized
indices, each of which is designed to
measure a particular value point and
determinant.
•
HAGI Top Index. This index,
which is calculated monthly,
provides an overall market
measure for 50 rare collector
automobiles
representing
19
marquees, from pre-war to the
present day. It is a broad indictor
of values and value movement.
•
HAGI Top Ex P&F Index. This
is a more granulated measurement
of market value and value changes
that includes collector cars, but
excludes Porsche and Ferrari.
•
HAGI F Index. This is a highly
specialized index that concentrates
on measuring the market values
for collector grade Ferraris
produced from 1950’s to the
present day.
•
HAGI P Index. Similar to the F
Index, this index is exclusive to
Porsche models, from the 1950s to
the present day. The index is
intended to measure the market
value and change in market value
for collector quality Porsches.
EXHIBIT 3.1
For a selected portfolio of vintage classic cars, the values
increased 33%, on average annually for the 1980 to 2011
period. Cars of this quality have increased, on average,
Subject to change without notice. 30% per annum with a low to negative correlation to other alternative asset classes. Commentator and LA
Times Reporter Jerry Hirsch reports that “the value of collectible cars has surged 33% since the depth of
the recession in 2009.” As summarized in Exhibit 3.2 (below), since 1980 highly coveted and rare classic
cars of this asset class have outperformed the Dow, S&P 500 and S&P 1200 by a considerable margin.
EXHIBIT 3.2
HAGI Top Index Performance vs. S&P 500 Performance
HAGI PERFORMANCE
HIGHLIGHTS: BACK TEST
(Source: “Classic Car Auction Yearbook: 2011-2012” & HAGI & Bloomberg.)
•
For the 1980 to 2012
period the HAGI Top
Index increased 30%.
•
For the 2009 to 2012, the
value of HAGI Blue Chip
of 25 classic cars
increased 33%.
•
For 2011 to 2012, the
HAGI increased 18.2%
year to year, with a
10.3% increase in 2012.
(Sources: HAGI and Credit
Suisse.
Exhibit 3.3 (right) provides a summary of some of the key
appreciation and possible returns associated with the classic car class. Not surprisingly, as an alternative
asset, vintage classic cars can
possibly provide the investor with
portfolio diversification and a
possible defense to systemic cycle
risks. Investment grade cars that
comprise the HAGI have a
negative correlation to that of
traditional asset classes, and are,
therefore, behave contradictory to the traditional classes.
(Source: HAGI data, as prepared by authors)
EXHIBIT 3.4
As provided in Exhibit 3.4 (left), HAGI and
Bloomberg data suggests that the values of
vintage classic cars move in near negative or
negative correlation to changes in the values
of CRB Commodity Index, S&P 500 Index,
and Barclays US Treasury Index. There is a
slight positive correlation with the spot gold
index. According to Dietrich Hatlapa, such
assets can prove to be a useful
diversification. Hatlapa was quoted in the
Telegraph as, “We’ve discovered that classic
cars move independently to any other
investment area. That’s an attractive
attribute for collectors and investors alike.” ©2014. M. A. Mische & Marc Spizzirri.. CONFIDENTIAL & PRIVATE. Not for public distribution. All rights reserved. Not a solicitation
Subject to change without notice. The overall performance of vintage classic cars of this quality and class has also outperformed the Dow,
S&P 500, gold, wine and fine art. As analysis and data in Exhibit 3.5 (below) indicate vintage classic
cars have outperformed gold, wine and other commodities.
EXHIBIT 3.5
For the 1980 to 2012 period the HAGI Top
Index increased 30%, with an CAGR of
12.6% as compared to 2.6% CAGR for gold.
•
For 2011 vintage classic car values
increased nearly 20% as compared to
gold at 10%.
•
For 2011 to 2012, the HAGI increased
18.2% year to year, with a 10.3%
increase in 2012.
•
For the 2009 to 2011, cars of this vintage
valued at more than $125,000 have
increased 47%. The Barrett-Jackson
index indicates a 16% annual average
increase in the classic car market over the
last ten years.
Despite the recent period of economic uncertainty and decline in general asset values, classic car prices at
auctions have consistently increased (in general) due, in part, to activity generated by both avid collectors
and an influx of purchasers viewing classic cars as an investment. A main reason for this interest in
classic cars as an investment is that it is a tangible asset that is not prone to the volatility of mainstream
asset classes. Additional factors include emotion and pride of ownership. Unlike common stock, a classic
car can be shown, sat in and appreciated. And unlike common equity, the classic car is not prone to “stock
buy backs,” regulatory review and the sentiments of market makers and traders.
FORD MUSTANG BOSS 351
PLYMOUTH HEMI ‘CUDA
Growing up in the late 1960’s and 1970’s as a “car guy” there were only two questions that you asked:
“What’s in it?” and “Wanna run?” The Plymouth Hemi ‘Cuda and Ford Mustang Boss 351 were two
muscle cars that no one wanted to mess with…these were the elite of the elite of “fast & furious” capable
of clearing a quarter mile at over 100 mph…they were not for the faint of heart!
INVESTING IN CLASSIC CARS
The primary factors to success in buying and selling collectible classic cars are similar to any reasonable
asset investment strategy: (1) locate the proper type of car with the appropriate provenance, (2) procure
the asset for the lowest possible price, (3) hold the asset for the optimal time, (4) divest of the asset at the
optimal price under the most favorable terms. Sounds relatively straightforward, except like any major
investment class, knowledge and specialization are generally required and most certainly highly desired.
As Robert Banner noted in his editorial in HS-Yearbook 2012, “Dominating the market principally are
cars in exceptional condition or those of exceptional provenance and those with eligibility for the most
covetable of the events, be they road rallying, circuit racing or concours.”
Because cars of this caliber and class are so highly specialized and prized, locating the proper classic car
is always the most difficult part of the process. There are many cars in the market that have been
modified, restored to marginal standards, or fitted with improper equipment that distract from the purest,
dilute the pedigree, and ultimately diminish the dollar value. Similarly, there are cars that are highly
desirable and there are cars that appeal to only a few. The key to this asset class is like any
other…knowledge of the investment, knowledge of the market, accessibility to product, and liquidity of
product.
Auctions are one channel of access to classic cars, as well as private sales, estates and private collections.
With television, live streaming and Internet bidding, auctions have certainly stimulated interest in classic
cars and have done much to provide access to product and liquidity. Although auction houses have
demonstrated consistent growth in total revenue (along with expanding the awareness and interest in the
classic car marketplace), they may not typically be the best place to make a purchase. At these events, it is
sometimes difficult to learn the complete history of the car and to properly inspect the vehicle prior to
purchase. Additionally, the investor will frequently find him or herself bidding against a number of retail
buyers. Clearly, this is not the optimal formula for maximizing profits based on acquisition price. More
importantly for the investor, auction companies generally make no representations or warranties regarding
the vehicles or authenticity thereof that they sell.
Essential to the value and price of the vintage classic car is its “provenance.” In the vintage classic car
world, next to actual physical condition, having an authentic documentation and verifiable provenance of
the car is one of the most critical determinants of the car’s value. Provenance includes such attributes as:
the car’s history, its chain of ownership, its date of manufacture, place of first sale, build sheet, whether it
has been restored or repaired, where and how the car was stored, race history, drivers, and other pertinent
information that validates the authenticity of the car, which in turn drives the value of the car.
Determining the accuracy of a vehicle’s provenance requires years of training, exceptional knowledge of
the vehicle and its production codes, and the ability to match those codes, such as frame codes, engine
codes, casting codes, transmissions, etc. to the original specifications of the car. Vehicles that have a
“perfected” provenance are highly coveted and command the higher values.
Verifying and understanding the values and historical appreciation of vintage classic cars is relatively
straightforward. Historical values and actual sales prices for this asset class are periodically reported by a
variety of sources including: private collections, local auctions, televised mega-auctions such as BarrettJackson and Mecum, NADA, Sports Car Market, Ferrari Market Letter, specialty car clubs as Ferrari
Owners Club and Mustang Club of America, and the highly attended Concours d’Elegance, such as
Amelia Island, Pebble Beach, Palm Beach and Monaco, which are the red carpet events of the vintage
automotive world. Of course, values and prices vary from year to year and by car, year of production and
rarity. Investing in classic cars requires expertise, knowledge of sources and a command of values. Once a
car is procured, it must stored properly and maintained in perfect condition and working order. Thus,
Subject to change without notice. specialized facilities and technical talent are often associated with investing in this asset class. As Marc
Spizzirri, a well-known collector and seller of classic cars noted, “Cars of this class and caliber require
constant care, constant attention and constant love…you just can’t buy them and leave to chance. In the
end, they are art and we are the custodians of that art and the guardians of the pedigree and value.” That
sentiment is shared by Alois Battig, Head of Private Banking for Credit Suisse Eastern Europe, Middle
East and Africa Regions, who noted in his editorial in “Classic Car Auction Yearbook,” “We at Credit
Suisse think that international classic car scene and our company have a lot in common, such as pursuing
excellence, looking after tradition and maintaining values.”
For the general enthusiast, the mainstream investor, and professional money manager classic cars may
provide significant investment and diversification opportunities. However, as with all investments
competent, qualified and professional resources are required to source the assets, maintain them and then
divest of them at the optimal time and highest price. What is required is a viable investment method that
allows investors of varying wealth and sophistication and professionally managed funds to participate in
this market with greater confidence, manageable investment and reasonable risk management. But
owning a piece of living art that you can see, touch, hear and feel…well, that’s worth something, that’s
living!
“Ladies and Gentleman, start your engines!”
Subject to change without notice. THE AUTHORS
MICHAEL MISCHE
An avid enthusiast of American “Muscle Cars,” Michael A. Mische is an accomplished executive, author
& educator. With over 30 years of management consulting and investment experience, Mische is well
known as an “organizational transformation & turnaround expert” and management consultant. A
former consulting principal (non-CPA partner) in the global firms of KPMG and A. T. Kearney, Michael
has over 30 years of experience in management consulting for strategic planning, mergers, takeovers and
turnarounds, business integration and higher education. Mische has worked in a variety of industries and
has consulted to a wide range of organizations, including Fortune 500 companies, prominent management
consulting and investment banking firms, state and local governments and has testified before legislative
and judicial bodies as an expert witness and in a number of litigation cases.
The author of seven books, including, Management Consulting: Professional Practice, Responsibility &
Performance (scheduled for August 2014), Strategic Renewal: Becoming a High-Performance
Organization, and the best-selling book, The 21st Century Organization: Reinventing Through
Reengineering, which he co-authored, with renowned leadership expert, Warren G. Bennis, and editor of
Systems Integration: A Reengineering Approach, Mr. Mische has been cited in over 200 articles,
interviews, reviews and studies. Since 1997, Michael has been an Adjunct Professor of Management in
the graduate division of the Marshall School of Business of the University of Southern California where
he teaches strategic transformation, organizational behavior, and management consulting. Michael is a
general partner in Ultimate Classic Car Fund-1, LP.
Michael holds a B.S. degree “with Honors” in Finance and Economics and an MBA degree in Finance
from New York University’s Stern School of Business, and an M.S. degree in Federal Taxation from
Golden Gate University in San Francisco. Mr. Mische was elected to Beta Gamma Sigma and served as
Chairman of Stern School of Business Annual Fund.
MARC SPIZZRRI
A proven executive with over 30 years of automotive experience Marc Sprizzirri is well known in the
collectible automobile circuit. Marc has owned and operated a number of successful new car and retail
dealerships with combined annual sales of over $400 million and has also specialized in the collecting,
servicing, storing and selling of elite collectible cars. Marc’s globally recognized expertise spans the
exotic European cars, including Ferrari, Lamborghini, Mercedes Benz & Alfa Romeo. An expert in
provenance and values Marc’s opinions regarding exotic cars are highly sought by collectors, auctioneers,
and appraisers. Currently Marc serves as CEO of Blue Chip Automotive Group and is the lead investment
advisor to the Ultimate Classic Car Fund for the selection of investment grade automobiles.
Marc is recognized for his contributions to education and community development throughout Southern
California and has served on many boards. Mr. Spizzirri attended the University of Pittsburgh and
Thomas Jefferson College of Law, earning a BSL and JD, respectively. An avid sports fan, a co-founder
of two premier private catholic schools in Orange County, Marc is married to Candace (1981) and is the
father of two.
Special Acknowledgement:
HISTORICA SELECTA
Historica Selecta
SRLVia Paussolo 14/A,
Capri 41012, Italy Email: [email protected]
http://www.historicaselecta.it
19

alternative asset class investments: the case for classic cars

Transcription

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