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What a Bear Market and Strong Dollar Mean for Car Collectors

Conflicting forces are at play.

(Bloomberg) -- In the past two weeks, Peter Brotman found himself evaluating two multimillion-dollar car collections offered for private sale.

Each collection—one with more than a dozen significant Porsches, the other featuring a cache of heavy hitter Ferraris—represents a massive potential transaction on an ultra-rare group of cars that were so undercover that until recently, even Brotman himself wasn’t sure they existed.

But if you ask the Philadelphia- and Los Angeles-based specialist whether he worries that the sales’ timing coincide with some precipitous drops in the stock market, he’ll smile. “These are not people who make decisions based on the stock market,” he says. 

Proverbial wisdom dictates that as market values tank, many investors seek the perceived stability of such commodities as gold. But many of the world’s wealthiest choose instead to sink money into tangibles, including cars.

“Historically, when markets are down, that tends to be when money starts to flow into alternative assets, such as collector cars,” says Michael Caimano, a car specialist with RM Sotheby’s.  

“People see the disappointing performance of the stock market as a reason—or an excuse—to pour more money into cars,” wrote John Wiley, a Hagerty spokesperson, last month.

There are levels to this mentality, though. Values are starting to plateau for the sub-million-dollar vintage sports cars that enjoyed a sales bonanza during the novel coronavirus pandemic, when records for both pricing and volume were set on such online platforms as Bring a Trailer and Market by Bonhams.

But people shopping for blue chip items such as 1950s Ferraris, Mercedes-Benz Gullwings, and race cars from Jaguar and Porsche exist blissfully outside that field. They are simply not susceptible to market volatility.

“In cars under a quarter of a million dollars, that's starting to correct a little bit. The COVID bump, if you will, has come off a little bit,” says Stephen Serio, a Boston-based broker of rare European vehicles. “But the markets don't mean a thing to anybody that can stroke a check for a $5 million or $10 million car.”

Global Exchange  

What does affect the buyers of seven-figure cars are factors that are more sweeping: Brexit, grain prices, energy prices, the war in Ukraine. It all adds up to the relative strength of the US dollar.

“The bigger thing right now for the biggest collectors is what the dollar is doing for opportunity,” Serio says, noting that exchange rates favor the dollar, compared to the euro, right now and translate into significant savings. Those buying with US dollars “can shave 10% off of anything, and that is real money. People are thinking: Is there something I can buy in Europe that now might be cheaper than it is in the United States?”

The US dollar is the strongest it has been in decades, up more than 10% for the year. For Americans buying the rarest of Ferraris or Aston Martins in, say, England, France, or Germany, that means their money goes further.

“I had a 750 Monza Ferrari deal done in euros a month ago, but I wish it were done today because it would have been a couple thousand dollars cheaper,” Serio says. “We did the exchange at $1.05, and now it would be closer to $1.00—and that makes a big difference on a $5.5 million deal. That’s a lot of dough.”

The Rich List … and Everyone Else

Putting all this aside: A pause in the transactions of seven-figure vehicles typically happens at this time of year, anyway. If they aren’t already off the grid, sailing in Mexico’s Sea of Cortez or ensconced in a villa at Italy’s Lake Como, many serious collectors postpone purchasing anything through the dog days of summer in order to see what will be announced for the annual car auctions held during the third week in August in Monterey, Calif.

“There is traditionally a lull between now and Pebble Beach because everybody is waiting to see what the offerings are,” Serio says. “Everybody's looking for the cheese. Do I save my dry powder until it's time to go to Monterey?” Despite slumping attendance during the pandemic, the auctions during the Pebble Beach Concourse d’Elegance are still considered the year’s most prestigious event—and the most telling, in terms of indicating the car market’s direction. 

Some of the significant lots already announced for sales this year include a 1962 Mercedes-Benz 300 SL Roadster (one of just 218 made with the desirable alloy-engine block) and a 1977 Porsche 934/5 race car, from Gooding & Co.; a 1955 Ferrari 410 Sport Spider with coachwork by Scaglietti and a 1937 Mercedes-Benz 540 K Special Roadster, offered by RM Sotheby’s; and a 1969 Lamborghini Miura P400S with coachwork by Bertone, from Bonhams.

For most buyers, these are not affordable cars. (While pricing estimates are not announced for all of them, the red racing Ferrari and the prewar Mercedes from RM Sotheby’s are valued at up to $30 million and $12 million, respectively.) Still, they indicate which buyers the auction houses expect to be attending the sales. This year the auction house has consigned 58 vehicles valued at more than $1 million for the sales at Pebble Beach, a spokesperson said in an emailLast year, by comparison, RM Sotheby’s sold 42 such vehicles. At Gooding & Co., 50 vehicles have pre-auction high estimates of at least $1 million, up from 38 last year, according to a spokesperson.

“Blue-chip collector cars are outperforming almost all other asset classes, over time,” Caimano says.  

As for what is likely to happen in Monterey, experts say prices may not continue the streak investors saw over the past two years. That might feel like a slowdown, but it would be more like a correction to unsustainable growth than a real decline. 

“Inflation continues to accelerate [amid] concerns that Federal Reserve measures to slow it will push the economy into recession,” Wiley says. “If history is any judge, the big dip in the markets will impact the collector car world. Our prediction [is that] some collectors will need to sell under duress, while others will see bear markets as a buying opportunity.”

Folks in the most elite echelons remain confident. The thirst for vehicles in mint condition has been so strong for the past seven or eight years that, even if prices simply maintain pace rather than grow, they will still be scraping the stratosphere. 

“The rich are always going to be so filthy f---ing rich,” Serio says. “I’m very excited to see what happens in Monterey.”

To contact the author of this story:
Hannah Elliott in Los Angeles at [email protected]

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