The Wiley Report

What economic factors are weighing most heavily on car collectors?

by John Wiley
24 June 2022 3 min read
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Photo by Getty

If we’ve learned anything in the past few years, it’s that everything in our modern economy interconnects, but also that those connections are extremely complex. Whether it’s a virus in central China, a Russian tank column in Eastern Ukraine, or backlog at a California shipping port, chances are businesses and people everywhere will be impacted, but the nature of those impacts can be very difficult to predict.

We certainly don’t claim to have a crystal ball, but we have constructed a computer model that helps us understand how the economy affects the classic car market—and potentially predict it. We’ll explain how it works here and then look at what it’s telling us now.

Just as the economy’s many parts move in different directions, the collector car market also has many segments moving in different directions. So, in attempting to dissect how our corner of the world is impacted by the current economic news, it pays to look more closely at those constituent parts. Typically, the collector car market responds to the following economic factors:

  1. The stock market
  2. The price of oil
  3. Residential real estate
  4. Unemployment
  5. Auto loans

However, with all the recent changes in the world, we also decided to investigate (and add to our model) other factors such as inflation, commercial real estate prices, the 10-Year 2-Year U.S. Treasury spread, mortgage rates, Fed Funds, a currency basket, and the cryptocurrency Bitcoin.

We also break the collector car market into segments. Someone who buys a $20 million McLaren is in all likelihood motivated by different economic factors than one who picks up a $64,575 Camaro on Bring a Trailer. (For a deeper breakdown of what factors most impact various segments of the market, see this article from 2020.)

For the purposes of this article, we’ll look closely at a particular aspect of the market: bidder confidence at online auctions. We measure that by tracking what percentage of vehicles get bid above their concours-condition value in the Hagerty Price Guide. Here’s how that maps out over the last 2+ years:

No surprise, bidder confidence generally tracks with the overall economic mood. But what factors in particular had the most impact and thereby might be the best predictors going forward? That's where the modeling and analytical tools come in. We start by inputting all the aforementioned economic data into the model and having it "predict" a period in the past. Then, one at a time, we remove certain factors. Does our prediction of bidder confidence in July 2021 get better if we remove housing price data? How about employment stats? Once we think we have an accurate grouping of factors, we then make another "prediction" on a different period in the past. Does that accuracy carry over into the second testing period? If it does, the accurate factors from the training period are likely to be more reliable. Then, last but not least, we interpret the output—does it seem plausible?

The factors that have best predicted post-pandemic bidder confidence are the Consumer Price Index (CPI), the price of oil, and the stock market (here represented by the S&P 500). Factors that have less explanatory power in decreasing importance are factors such as auto loan rates, mortgage rates, and cryptocurrencies.

Knowing which factors have most impacted online bidders' confidence helps us predict how they'll react to economic changes down the road. It also gives us a sense of who is—and isn't—participating in these auctions. We've heard anecdotes of crypto rich pouring money into collector cars. Those anecdotes might be true, but the data tell us that they're not representative of the whole scene. In fact, the behaviors of online bidders seem to map more closely with middle- and upper-middle-class consumers.

That calculus changes if we look at a different part of the market. The upcoming Monterey Car Week auctions, for instance, have a much higher price point than online auctions. (The average sale price of the online auction transaction set used here was $49,998, versus $429,549 for Monterey auctions from last year). We can run our same process of testing of economic factors by pointing our model at vehicles valued at greater than $100,000. Here, bidder confidence has been influenced more by Gross Domestic Product (GDP) and less by unemployment, but the CPI remains very influential.

Does this model tell us what the results will be at Monterey 2022? It has some guesses—and we'll be sharing it soon—but to be honest, that's not really the point. The model is most helpful at helping us better think through how the myriad pieces of the economy and collector car market interact. As Car Week nears we'll be keeping a close eye on inflation and the price of oil, but also to what extent the Fed's rate cuts cool GDP. Additionally, Monterey's results will offer fresh points for analysis, enabling us to further refine our model.

Inflation has not been on the collector car market's (or the public's) radar at all in recent memory, but it's clear that while it is merely one metric among many, both segments we've analyzed are now paying close attention to the CPI.

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Comments

  • Maestro1 says:

    I always read john Wiley and disagree with him most of the time, but it’s very interesting reading. Hagerty is
    similar to financial analysts in this context who I also read a small group of and taken them with a grain of salt.
    I am an Iconoclast when it comes to buying cars. I buy them off the street, out of car ports, in the desert, and so on. Because I am on the Left Coast rust and corrosion are minimal issues. I think auctions are mostly herd lust, and some market values are hysteria. You’d be amazed at what I find. And at the right price.

  • Mick says:

    Well, alrighty then ! I was really only checking article for hints on classic car ownership…

  • Adrian Harrison says:

    I acknowledge most of the comments above. However I do have reservations about using this platform for socio-political commentary. Both authors have rendered cogent and elegant analyses that reflect deep thinking – my caution derives from a concern that the ultra right may view it as an opportunity to disseminate their agenda. Just saying.

  • Rick C says:

    We all know the reason the price of everything here in the good old USA is zooming and shortages are evident……..NO confidence in current leadership period! Now what can I expect to happen to the values of my fleet of classic cars, that wont be for sale anyway?

  • David Zenlea says:

    We are having a problem with escalating tensions amongst our users, and when topics get too far off the original story, things are starting to get out of control. For now we need to stick closer to the topics presented initially, and you can read our full guidelines here:

    https://community.hagerty.com/t5/community-help-and-guidelines/community-user-guidelines/m-p/103396

  • John Ehle says:

    I find these articles to be interesting. While this one speaks to the economic factors that impact the collector car market, I tend to look at the collector car market as a reflection of what’s going on in the economy, and sometimes an indicator of what might be to come.

    While this article is not revelatory to me, as it identifies the same main economic influences that we’ve known about for 30 years, I felt compelled to make two observations about it:

    1) In the first table, showing online bids as a percentage of Condition 1 value, what this article fails to mention is that Hagerty’s Condition 1 values went up in 2022 as a result of bidding in 2021, so it stands to reason that bids in 2022 are lower as a percentage of Condition 1 values. But, bids in 2022 are still higher than Condition 1 values, so I think it’s an exaggeration to say that “bidders have reined in their bidding.”

    2) The article closes by saying that “inflation has not been on the collector car market’s (or the public’s) radar at all in recent memory,” yet earlier this year Hagerty published an article that pointed to collector cars being seen as an inflation hedge as a driver for the market run-up to 2015 (citing a Wall Street Journal article around the time of the Great Recession). I’ve noticed a consistency of contradiction between various Hagerty articles. It suggests that Hagerty’s contributing authors don’t read any other Hagerty articles.

  • Inline8OD says:

    Recycled common sense. This is an article? About cars? Leave this filler for Kiplinger’s and the Wall Street Journal Weekend Edition.

  • Rex OSteen says:

    looks like a disinterested person with some computer software and reporting results, possibly without understanding the factors that are at work- what about the effect of drop in stature of the internal combustion engine, and the declining role of the role and meaning of car culture as entertainment alternatives have evolved, and drop in real earnings in the lives of middle class younger consumers?

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