Quarterly newsletter

by David Zenlea
5 August 2020 10 min read

The “right” way to think about a correction

We see the same headlines as all of you: Inflation is up. Interest rates are up. Corporate earnings are down. It seems like everyone is waiting for the Fed to declare a recession. Closer to home, there are  signs the pandemic-fueled frenzy for alternate investments—from Bitcoin to watches—is slowing.   It would seem to follow that the collector car market, which has been on an unprecented tear for the last 18 months, is in for a correction.

On the other hand, a Ferrari Dino just sold for record money on Bring-a-Trailer. Demand remains very strong. The number and quality of cars at Monterey is impressive (think: the most million-dollar-plus consignments ever). Owners report no problem finding buyers. Hagerty’s new marketplace has huge participation. Calling the end of the rising market is a fool’s game. 

But what must go up, must eventually come down, right? Yes and no. The beauty of today’s classic car market is its robustness. It’s powered by enthusuiasts of all ages and walks of life, buying cars first and foremost for enjoyment. And the vast majority of them, it must be noted, are paying cash—almost no one needs to sell a collector car to pay a bank loan. 

Please understand, we’re not saying there won’t be a correction. In fact there will be one, sooner or later. Markets cycle, after all. With values for everything from Ferrari F40s and Lamborghini Miuras to 1960s muscle cars at or near record levels, it pays to know exactly what you’re buying and what the prevailing market conditions are. We’ve put together this newsletter to help give you that high-level understanding. In this issue we’ll take you through the various indices we use to measure the market and forecast the upcoming Monterey auctions. We’ll also zoom in on one particular car to better understand what can cause volatility in prices.

Yet the upshot is that classic cars remain among the least risky places to store money—precisely because the vast majority of collectors don’t view them merely as a place to store money. They’re buying what they love within their means, and they won’t flee the minute prices tick down. Play by those rules, and it’s hard to go terribly wrong, no matter what the headlines say.  —The Hagerty Team

How Hagerty measures a market on the move

Most people who opine on collector car values are going by three sources of information: 1) Auction prices 2) What they themselves are paying or being paid for cars 3) What others are saying about 1 and 2. 

These are important sources but they cannot represent the entire market—more than 30 million vehicles according to a recent Hagerty study­—especially since the vast majority of collector cars sell privately, and their prices are not made public. Buyers and sellers do, however, share what they think their car is worth with their insurance company, either when they call for a quote on a policy or if they call to adjust their policy up or down (“endorsement” in insurance speak). Since Hagerty is the largest provider of insurance for collector cars, we have a lot of this data—millions of cars. We supplement that by personally inspecting thousands of cars at auction each year to understand how condition correlates to value. We also monitor the broader economy, and have built computer models to help forecast how various financial metrics (Consumer Price Index, S&P 500, etc.) impact car collectors’ behavior. 

We distill this data—along with insights from trusted industry insiders—into a number of metrics that help us and our customers better understand our industry. Let’s walk through several of them to get a sense of where we are as we head toward the Monterey auctions:

The Hagerty Market Rating, our thousand-foot view of how hot collector car values are based on both in-market data and economic indicators, dipped in July following 15 months of consecutive growth. The main reason: inflation, which finally accelerated past the classic car appreciation. That said, the rating remains near record highs, reflecting continued strength in classic car values and high sales activity.

  • The latest update to our well-known Hagerty Price Guide shows continued appreciation across a broad swath of collector car segments. Modern Japanese cars enjoyed some of the strongest gains, with the 1989–94 Nissan Skyline GT-R growing by 18 percent in the last quarter alone. That said, the rate of appreciation in the market seems to be slowing compared to earlier in 2022.
  • For the first time in 18 months, our Blue Chip Index, which averages the values of 25 of the most sought-after collectible automobiles of the post-war era, experienced no appreciable movement. Most changes in this space were small in nature with 300SL Coupes gaining 6 percent and Aston Martin DB5s rising just 1 percent. Note, however, that the index does not include the record sale of the Mercedes-Benz 300SLR Uhlenhaut Coupe for $142 million. What this sale means to the top of the market remains to be seen, but it does raise the bar for what the right car can sell for.
  • Hagerty’s Muscle Car Index is at an all-time high. These index trailed much of the market early in the pandemic, likely because muscle cars rely more heavily on in-person auctions than other segments. However, it picked up in late 2021 and has since skyrocketed. Although the index is limited to “halo” muscle cars like the 1970 Plymouth Road Runner Superbird, we’ve noted big gains for more mainstream muscle cars, as well. 
  • Much of the movement in our Ferrari Index has been with more modern models. The biggest winner was the 328 GTB, which gained an impressive 21 percent. The most surprising result, however, was the 2011-16 FF, which gained 12 percent in value. A few isolated models experienced a step back with the F430 walking back 6 percent and 458 Italia losing 2 percent, but overall the Ferrari market appears to be in a relative holding pattern for the moment. The upcoming auctions in Monterey—always a focal point for classic Italian metal—should provide more insight into where the top end of this index is headed.

Our indices are updated regularly. You can find them here

Monterey Car Week auctions are now just weeks away, and they are coming at a particularly interesting time for both the economy at large and the collector car market in particular. That makes the job of forecasting these auctions quite difficult. Yet it happens to be our job. Let us take you through the variables before we get to the prediction.

Bidding has cooled slightly, but remains aggressive for the most expensive vehicles

Growth in our indices, as noted on the previous pages, has mostly slowed. Furthermore, aggressive bidding, measured by bids above the Hagerty Price Guide Condition #1 “concours” value at online auctions, is becoming less common. However, this is all relative to the fevered pitch of the past 18 months. Bidding on the whole remains aggressive: In July, nearly a quarter of cars offered at online auctions that crossed the $100k threshold went on to exceed their Condition #1 prices in the Hagerty Price Guide. For comparison, that only happened 3 percent of the time for cars that hammered below $100k.

Monterey will see a lot of big cars...

Monterey always draws fine machinery. In recent years, though, some of the very best cars have stayed home, with sellers of top-tier cars preferring to test the waters privately, through high-end dealers and brokers, rather than risk getting low-balled in public. Strong prices across the board in 2022 and a new all-time record for a most expensive car at $142 million seems to have changed that calculation. While the auction run lists are not yet final, the number of $1 million and up vehicles consigned to the auctions is set to exceed anything we've seen in prior years.   

...In some cases, perhaps too many (or maybe just right)

There are twelve Mercedes-Benz 500K/540Ks at the auctions. That's six times the number we'd expect to see at auction in a typical year. On the one hand, this represents a once-in-a-lifetime opportunity that could attract more buyers—everyone who has ever dreamed of owning one of these special cars and has the means to buy one is likely to be here. On the other hand, there are only so many of those people. If supply exceeds demand, some of the cars, particularly those later in the week, could suffer.

That said, we're not concerned about there being too many cars or too many auctions overall, as was the case back in 2019. Two auction companies have stayed home this year, while a new auction, from Broad Arrow Group* will offer cars at Monterey Jet Center on Thursday. We expect just under 1200 vehicles at the auctions, which is less than the 1300 to 1400 we've seen consigned in past years.

Will Monterey reap 2022's appreciation?

The story through most of 2021 and 2022 has been across-the-board appreciation. Since we gathered in Monterey last August, the average Hagerty Price Guide value for a car in excellent (#2) condition has increased 8.9 percent. Increasing 2021's average price $433,587 by that same 8.9 percent gets us within $2K of our average price forecast for 2022. (Note: This is not how we calculate average price, but the fact that two independent calculations churn out similar results tells us they're more likely to be accurate.)

Are sellers coming in with realistic expectations?

At the day, what we think a car should go for isn't as important as the number a seller has in mind. At auctions that have finalized their run lists, the share of vehicles with reserves is 58 percent, which is higher than all other recent years except for 2015 with 63 percent. If enough of these sellers have expectations that aren't realized, we could see a lot of no sales.

That said, when we compared low estimates for lots to condition-appropriate Hagerty Price Guide values we found the former to be only slightly higher—a median of two percent. Not excessive, in other words.

Will total sales be a record?

We can envision three scenarios:

  1. Everything "clicks." The quality and quantity of million-dollar consignments attracts exuberant bidding. Total sales approach to $500 million. That would beat the prior record for Monterey by $100 million.
  2. There's widespread disagreement about values between sellers looking for top dollar and bidders who think that top has come and gone. A few big "misses" could significantly affect the total. In this scenario, total sales could tick down by more than a third compared to last year. For those of you who remember Monterey 2019, this would be something of a replay.
  3. Something in between the first two: Bidders find the quality of the cars compelling, and consignors haven’t gotten carried away with reserve prices. In this case, sales would edge past 2015—the last market peak—but only slightly.

Our forecast, $395.8M assumes the third scenario is most likely.

One parting thought: In any of these scenarios, but particularly 1 or 2, there will be a lot of prognostication on what the results mean for the market as a whole. We should be wary of that. No doubt, a strong result will add fuel to the hot market, and a weak one will cool it. But if we've learned anything during the pandemic, it's that the collector car market is much, much bigger than any single event.

Market spotlight: The rise, fall, and resurgence of the Porsche 930 Turbo

The Porsche 930 Carrera Turbo, the first 911 to carry that special T-word on its rump, has a reputation for being incredibly exciting but also a bit of a handful. The same could be said from a valuation perspective. It’s one of the most volatile vehicles in the collector market.

We don’t care who you are, where you went to school, how many spelling bee plaques you have on the wall or letters you’ve accumulated behind your name: The Porsche 930 market is a challenge for anyone to comprehend. From cold to hot to cold in a year to piping hot again, it’s always on the move.

That wasn’t always the case. In 2010 you could get a 930 in excellent condition for a little more than $40,000. Then, things got crazy. By 2016, that same $42,000 930 was now $235,000. Give us a shout if you could have predicted such a rocket ride. By 2020, values tumbled to $140k. We'll buy you dinner if you predicted that and the prior increase.

The roller coaster ride has only sped up this year. In 2021, we saw eleven 930s sell for more than $200k. In the first seven months of 2022 we have seen 19 cars sell above that threshold. That includes a world record price (excluding Steve McQueen’s car for $2.145M) set in March 2022.

Given all that volatility, you'd need to have a screw loose to try and predict what comes next. And yet, with help from the insurance side of Hagerty's business, we're about to do just that.

First, we can get a sense of how active the market for 930s is at any point by looking at the 12-month count of 930s added to insurance policies. That number peaked in June 2015, exactly one year before the average sale price peaked at $148,000 in June 2016.

As the average price rose, the 12-month number of cars added to policies dropped. By June 2016, the activity was down 30 percent from 2015. It bottomed out in August 2019, when fewer than half as many 930s were being added to Hagerty policies. Put another way: high demand led sellers to increase prices, which led to fewer people buying them. Economics 101 at work.

Now let's look at more recent activity. In August 2020—before we detected any big movement in selling prices—the 12-month count increased a staggering 90 percent. It stabilized at that level through the better part of the pandemic until March 2022, when it began slowly dropping. March 2022 happened to be the month when a new record 930 sale price was set. If we are looking at history repeating itself, then expect the 12-month average sale price will drop off one year from now.

That 911 Turbo values would be so sensitive to demand makes a lot sense when we step back and think about where it fits in the realm of valuable cars. We're talking about a mass-produced vehicle (global production exceeded 30,000) that appeals to the well off and to the ultra-rich alike. This is the magic formula that allows Porsche today to sell both a $100k 911 and a near $300k 911 Sport Classic with a $12,830 "paint-to-sample" option. Yet it also means 930 prices cannot be sustained by a handful of top-tier collectors. When prices soar too high for the masses, demand dries up.

Demographic details in our insurance data bear out this narrative. At the beginning of the last decade, there was strong interest in the 930 from Gen–X collectors. Around the 2016 peak in 930 prices, they dropped out. The vast majority of people calling us for quotes on insurance on these cars were Baby Boomers—the generation with the most wealth. As prices receded in 2017 and 2018, the Gen–Xers came back, along with some Millennials and Gen–Z buyers.

Even more telling is the percentage of buyers who are top-tier collectors at any given time. In Hagerty-speak, these folks fit under the SSG, or Signature Services Group. On the whole, they represent a small but significant chunk of people who call Hagerty for insurance quotes on 930s—usually between 5 and 10 percent. You might think these deep-pocketed collectors have the ability to steer values—and they likely do to a certain extent. Yet what we see with the 930 is that after prices peaked in 2016, and "regular" collectors receded, interest from SSG clients was not enough to hold up prices. When values bottomed out just before the pandemic, the regular collectors returned, and the cycle started anew. At this moment, SSG clients represent the highest share of interest in the car since 2018. More evidence that a dip could be near.

What's true for the 930 Turbo likely holds for many modern classics, particularly those from Germany and Japan. Most are uncommon, but not rare by any measure, and most have only recently made the transition from "used" to "collectible." We suspect values for many of these cars will be volatile as high prices sap demand from younger enthusiasts.

Yet what looks like volatility in the short term should, in the long-run, make for stability. The 930 Turbo appeals to a broad set of collectors, both young and old, a few of whom have more resources than the rest. That means the car's value has a clear ceiling—when prices get too high the masses leave—but also that it always has a clear floor—because, inevitably, the masses come back.

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