Sep 12, 2010

Cars as Investments?

I think it was some time in 2004 or 5, I don’t really recall. Some relatives of mine came into some money.  Afraid of  the housing market, they came to me with a partially serious question. Should they invest in a Ford GT? I say partially serious because they really were looking for me to convince them. They liked the idea, but wanted a passionate push. I certainly was a fan of the Ford GT. It was Fords hi-tech tribute to the 60’s era GT40. I’m too young to remember, but history tells us it was used to decimate Ferrari at Lemans . This avenged Ford after the disgrace of Enzo Ferrari’s decision not sell his company to them. Sorry, I digress. You can look it up on Wikipedia.

I’d long hoped that I could achieve financial independence swapping cars over time. So, have spent a good number of hours working on the probability of success in auto investing. Sadly, have never really come up with a plan that paid off for the modest investor like myself. The conclusion was once you consider the myriad costs of ownership, the appreciation is more likely not to pay off. Well, at least not pay off any better than traditional investments. Take a GT350 long considered a perfect payoff. New they were under $6,000 you could sell a rust bucket for maybe $150K today. I know it sounds great, keep in mind that would be a 55 year investment. Conservatively considering a 10 year doubling cycle for any host of other stable investments you could yield about $200K. So not too impressive.  Then consider the risks and costs: theft, storage, insurance, repairs, even crashing. Also you’ve got to weed out the amazing stories of lost race cars and special one-off situations that are truly not applicable. Ask any rich collector and they’ll agree. Car “investing” is really a rationalization for people like me and not a real investment.

I wisely explained to my family that while a barn find might make someone rich occasionally, cars as investments are not wise. It would be best to leave 6 figure car purchases to the people who love the cars more than the investment potential. So, without any enthusiastic endorsement from me, they passed on the Ford GT for sale in Bellevue for $90,000 and sunk the money into the stock market. As I write this, the current selling price of a GT is now over $150,000.

You’re welcome Kathleen.

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In my defense, Ford raised the MSRP on the Ford GT from about $90 to about $150K during the first year of  production.   It’s hard to anticipate a manufacturer raising the cost of a car by $60K during a recession. So cut me some slack.


How to buy your car well

Buying used is a good start. Buying a 6 month old car will save you a lot of dealer markup that’s true. Even better, wait till that model’s run is clearly over. You never know what the manufacturer has planned till the run is over.  Many manufacturers make some sweet models at the tail end of a body style.  They need to pull out all the stops for sales at that point. Buying the last of a series will give to time to evaluate it's replacement too.  If the next model makes Car and Driver write about how slow your car was, you're screwed. If they write about how much a disappointment the new model is, you just won the lotto (Porsche 993 vs 996).   Keep that cost of ownership down if you are trying to call your car an 'investment', or you won’t be able to brag with truthfulness. Besides expensive changes to a car can often actually devalue it. Normal wear and tear items will always need attention by an enthusiast.  But, many fancy collectible cars can make these pieces a disproportionately bigger expense.  Examples like exclusive color shifting dyed leather, represent a bucket of money when the driver seat needs refurbishing. Be smart, not every special car is made with all special parts.  Which parts make your car special? The motor? The body panels? Maybe it’s simply the combination of common components in a desirable combination. A collectible car does not need to be built of exclusive components (that you can't afford to maintain) to be potentially special.

My personal preference is limited runs of common sports cars. With these cars you get a large supply of both knowledge and parts, keeping costs down. The Porsche 911 Clubsport is a good example. Built specifically for the club racing buyer, it is currently worth way more than a standard Carrera. One magazine explained the car: “Pay more, get less, go faster.” The Clubsport was a Carrera with improved suspension, modest motor improvements and then stripped of lots of stuff like undercoating, air-conditioning, sunroof, etc. All these deletions saved weight and save you  money in things you don't need to maintain over the years.  The Clubsport is clearly already realized its potential, but think along those lines. The Porsche RS America might be a modern example of another opportunity. Coming of age in the shadow of the Porsche water cooling issues, which has also driven interest to the final air cooled 993 Carrera’s. The value of the RS America has not dramatically risen yet. They can be seen and explained at http://www.rsamerica.net/ .   I personally searched for one of these recently,   but passed in the end due to the lack of luxury components.  Endure those hardships like cloth seats and reap rewards later.  

Another interesting place to find collectability is with a “parts bin car.” That’s my own personal term. Example, dig through all the parts your company offers from all the different cars, and make one car cooler that the others. The SVO Mustang of the mid 80’s was less than a super success story. Ford (with some German help) took the Mustang, swapped in the suspension from a Lincoln, added the Pinto 4 cylinder and then Merkur XR4Ti’s turbo. They threw in some Koni shocks and a unique intercooler for that turbo and instant collector car. Magazines at the time tried to remind everyone that this was more than a 4 cylinder stang with a hood scoop but interest was low since the V8 Mustang GT was quite a success. Now they did have some parts issues, trying to replace the wheels, seats, bumper facia and some other small bits can get tricky. So the rarity of some of these parts is getting to be an issue now. For the most part it’s a still Mustang and club support is out there (http://www.mustangsvo.org/). I sold my brother’s 13 year old barn find (yes they can happen)  ’86 SVO in 6 hours on that website 10 years ago.

The E36 BMW M3 had a slew of elite versions. At the time heralded as the “best handling car in the world at any price” all exceptional cars even by today’s performance standards. The special versions of the E36 are realizing their potential. . If the newer E46 M3 is your candidate then I’d vote for the BMW E46 M3 ZCP w/ the competition package. This one might be a stretch, but it’s too soon to tell till it’s too late to act. Based on the common, but exceptional E46 M3 it offered a small list of improvements that paid tribute to the magazine queen M3 CSL . Big brakes, suspension enhancements, quick ratio steering and really light wheels you can scratch up like me. The ZCP was far from the lightweight superstar CSL sold in Europe, it sure captures the enthusiasm the CSL created. Also it was the end of the E46 model run, so it’s clearly the final, coolest E46 to hit the road. BMW has not released the production numbers so rarity is still to be determined.

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Interlagos blue 2006 BMW E46 M3 ZCP. 

Invstigate car’s with over the top chassis, styling or whatever, but with reliable and affordable powertrains. They can be a good place to find value. Jensen's Interceptor, Sunbeam Tiger, Shelby Cobra come to mind. All had common, easy to service motors for the time. How about a Panoz roadster or Experante? Some consider them ugly, but they have racing heritage, and manageable Ford engines. I’m sure there are plenty of Japanese examples I’m missing too, like the Lotus Elise?


Expecting to actually make money might be a bit naïve, but this still is good way to shop. Nobody wants to see a purchase lose value too fast.
Look for cars that sacrifice for performance instead of indulge for it. Car’s that evoke passion need not do everything. Look for aluminum doors, radio or a/c delete options. Seats with manual adjustment. Sunroofs might not exist or cloth may have replaced the heated leather. The lack of these creature comforts for the purpose of performance will only appeal to a small group of passionate buyers, us. Leave the fully loaded super cars to the rich fools who can afford a $50,000 value drop, find that special esoteric niche that says you know your model and have mastered it’s potential with your choice.

You can’t sell, it’s your last sports car. But you can brag about how smart you were when you bought it.

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