Data Dive

Are we in a bubble?

by John Wiley
12 November 2021 4 min read
The Messerschmitt KR 200 is what's commonly referred to as a "bubble car." Don't confuse that with a collector car bubble... Photo by Courtesy RM Sotheby's

One of the key questions we at Insider have been homing in on of late is whether the collector car market is experiencing a bubble. We’ve noted the premiums being paid at certain online auctions, shared the huge gains in recent editions of the Hagerty Price Guide, and pointed out eye-watering prices where we’d never expect to see them. But to determine whether these headlines translate to a bubble requires deeper analysis.

One limitation of the collector car market (or maybe a feature?) is that cars don’t have well-understood fundamental values. We can attempt to determine whether a stock is overvalued by comparing the price to hard-and-fast numbers like the company’s revenues or growth rate. In contrast, a Ferrari 250 GTO is worth more than a McLaren F1 based largely on subjective and hard-to-quantify attributes, such as pedigree, rarity, and usability. To be perfectly clear, we are not saying a vehicle lacks inherent value. Quite the opposite: We think something you can see, touch, smell, and—most important—drive will likely retain its worth better than a stock picked based on a quarterly report. Yet the squishiness of what makes a vehicle special means it is hard to gauge when it is appreciating too quickly. It was pretty easy for stock market experts to declare that GameStop stock was over-performing, based on the beleaguered retailer’s sales, but who’s to say a Dodge Viper shouldn’t be growing in value faster than, say, a Chevrolet Corvette ZR-1?

That said, we do have ways to determine if values are rising faster than we expect. One, which we’ll focus on here, is the rate of record prices.

In any given year, a certain percentage of vehicles sold at auction achieve record prices—perhaps more than you’d expect. For instance, even in 2019, which pretty much everyone agrees was a terrible, no-good year for collector car values, nearly a third of the vehicles that sold at auction set new records for their year, make, and model. This reflects both the general and near constant rise in prices of everything (inflation) as well as the fact that enthusiasts are almost always chasing—and subsequently driving up values for—something.

When the percentage of record prices itself approaches a record, however, then we begin to suspect things are superheated. Such was the case for 2014 to 2015, the last period in the market that we’d generally recognize as a bubble—or at least a peak. In both those years, 41 percent of vehicles that sold at auction set a record.

The percentage of records we’ve seen so far in 2021 stands at—wait for it—41 percent. Yes, the same level we saw in 2014–2015. By this measure, we are indeed in a hot market.

Of course, it's worth remembering that although the market peaked in 2014-15, most collectors experienced the years that followed as a gradual plateau. Only a few vehicles dropped dramatically enough that we can—in retrospect—say the peak was in fact a bubble.

We can zoom in on particular kinds of vehicles setting records to help determine where we're looking at just normal market undulations and where we might be seeing something more. During the 2014–15 period, cars from Italy stood out, with nearly 70 percent of auctions of vehicles from that country setting records. It is thus no surprise that Ferraris, for which 67 percent of auction sales set records in 2014, experienced corrections in the years that followed. The same can be said of Porsche 911s—66 percent of its auction sales set records in 2014, a number that had tumbled to just 13 percent by 2019.

In 2021, cars from Italy have remained relatively calm, setting records only 30 percent of the time. The notable mover is Japan. More than half of the Japanese cars that have sold at auction in 2021 have set a new record.

The era from which we're seeing lots of records fall should likewise come as no surprise. In 2014, the heat was focused on vehicles from the 1950s and 1960s. Today, it's vehicles from the 1990s: They set records in 40 percent of auctions so far in 2021.

So, the answer to our original question—are we in a bubble?—largely depends on what you collect. For those who focus primarily on older European cars, the answer is, probably not, even if you're seeing appreciation. If you're filling your garage with 1990s Japanese metal, the answer quite possibly is yes.

It's worth noting that the newest collector cars are, if anything, where we should see a lot of volatility. When new participants enter a market, price discovery takes time. That's doubly true when you add new means of participating in and observing a market. With the incredible audiences that are now aware of auction prices, both online and from live auctions, it seems that higher prices get more and more attention these days. More attention brings higher prices brings more attention and so on.

Until, some day—inevitably—it doesn't. Bubbles burst.

If we sound rather blasé about stating that fact, it's only because of how little impact it will have on the typical collector and the market as a whole. If collector cars ran purely on dollars, like stocks, then right about now we'd be worried about speculators filling warehouses with late-model Japanese cars—probably on credit—and tanking the market the minute prices begin to slip. Surely, some buy collector cars in hope of a quick windfall; most, thankfully, do not. That is why the market has easily recovered from past bubbles, and why people continue to buy, sell, and enjoy vehicles no matter their dollar value. That's more than a moral victory—it's the reason the collector car market, by and large, is bubble-proof.

How much longer will this bubble expand and how big will it burst are elusive questions to answer. So in the meantime it is doubly important to perform your due diligence, research changing values, and really understand both the car you intend to purchase and the prevailing market conditions for it. If you're buying for enjoyment, you'll be set up for success. And if you're buying for investment, you'll be doing so with eyes wide open.

To explore the data yourself, take a look at our interactive record tracker and find out how your favorite vehicle or segment has been performing

Comments

  • Cyril Gollop says:

    What????????

  • Ken Rosen says:

    Great Article! I can show it to my son who believes the car market will collapse when the boomers do.

  • Gary says:

    IE don’t worry, keep buying it’s good for business.

  • OldFordMan says:

    It seems that the end of article got cut off. But here is a fact:
    THIS IS A BUBBLE! IT WILL BURST AT SOME POINT.
    Ez now to leverage money to finance a big price on a car(s) borrowing at 2.5-3.5%. Well, if you are invested and getting a 15-25% gain on your portfolio it means you are getting the money for the car(s) interest-free and still showing a good market gain.
    BUT, always a but. Some nasty thing can happen at any minute and stock gains turn to big loses and the car market goes south like everything else (let’s hope not another virus!) and your leverage is gone and you have to turn the car(s) into somebody else’s name (or the bank’s).
    Whew! a lot to think about in a bubble

  • T G says:

    The term “Bubble” should not be used interchangeably with “market cycle”

  • Greg McDowell says:

    I just wish people owned cars for passion instead of investments.

  • steve meltzer says:

    Interesting article, but Whoa!! “We think something you can see, touch, smell, and—most important—drive will likely retain its worth better than a stock picked based on a quarterly report.” Have you read the QRs for ADBE, MSFT, PFE, etc??? Collector cars are fun to own, but once you pay the insurance, taxes, maintenance etc. and lack of liquidity, unless you’re a dealer, you’ll rarely turn a profit. s

  • Maestro1 says:

    Thank you, John. I don’t buy cars based on their potential appreciation. I buy them because I like them, and frankly, I don’t give a damn about auctions, market values and so on. When I die the family will get the vehicles, sell what they don’t want nor need and keep the rest. When I’ve sold over time, rotated the collection, got bored with the car, whatever, I have asked a decent price, left some money on the table, and
    lost money twice. I’ve been in the Hobby a long time, and I’m intimate with its wheels.

  • Mark F says:

    Jeepers, I agree with all of the comments above. This is weird. However, a teenager down the street just bought a GTO – I was surprised. And what I want doesn’t have the power to make it up the hills in Western North Carolina.

  • Steve Lowen says:

    Bubble? Frankly, THAT is a phantom term, at best. Most often used during the past year with the Equities Market. This, in reality is ONLY that which, in retrospect is self evident. Vintage Vehicles? One would argue that record fuel prices, maintenance, should have sent this segment south quickly, but the reverse occurred. South Seas Bubble in the Car Market? Count on it at some point, but it is a fools paradise to accurately forecast when. In the meantime, buy the lower priced Collectibles to keep modest gains, or shield from large losses.

  • George Pehanick says:

    The government has poured TRILLIONS into the economy. Simple inflation. What doesn’t cost more ?

  • Russ Baird says:

    Simply, buy what you like ! If it turns into a profit, so much the better !

  • Jim says:

    The specutators in the auctions have priced most people out of the hobby. I was bidding on a car I wanted just because I wanted something to drive to the Cruise nights and car shows. It was what I considered a lower priced car that had little collector value. The bids went from $1,000.00 through a dozen steps to about $7,000.00 which I considered the value of the vehicle after some research. One minute before the bids closed, someone raised the bid from $7,000 to $11,500, an outragious price for a 1988 car. I am buying an exact duplicate of that car locally tomorrow, with the same options, the same mileage, and the same color. The owner is delighted that I offered $6,500.00. I just hope that the guy who paid $11,500 takes a bath in a year. Th small guy who just wants a nice sports car to drive to church, is not prepared to spend 2 million dollars for the privilege. People around here I have talked to, have abandoned Craig’s List, E-Bay and other sites because the prices are inflated too much. Every seller thinks his rusty 4 Door Nova station wagon is made of gold, just because they saw a 2 Door SS with a 396 4 speed for that price.

  • Rob Blubaugh says:

    How will the push to eliminate internal combustion engines and to ‘go green’ affect the collector car market? With fuel becoming more scarce and costly, with likely limitations being imposed on operating cars that use carbon fuels to reduce emissions, will ‘driver cars’ be devalued and only exquisite, #1, non-driver show car / museum cars retain their values? Will the bubble burst on our driver #3 cars? When should we sell to ‘best the bubble burst?’

  • Alex says:

    It seems like what the author can’t say (understandably) is that in this pandemic (and in most crises for that matter) it was the wealthy who got wealthier because the pandemic only rewarded people who already had assets. And since it is already these people who are the ones who participate in the top flight collectors market, no wonder we’re seeing absurd numbers in the $100k+ cars. If my worth jumped from $20M to $25M due to sheer luck, sure I’d bid an extra hundred or two thousand to get the car I want. Peanuts for me, eye watering for everyone else.

  • Mark L Bedel says:

    Since certain vehicles like the original Shelby Cobras will always be out of reach for most, I’m wondering if the replica market would show similar growth trends. I wouldn’t expect the growth in their value to be volatile at all, but steady.

  • Brian Maloney says:

    Until they bolt an LS and sport seats onto a stock certificate we’ll continue to have fun owning and driving classic cars. Vroom.

  • jane don says:

    I think Most of us own classic or antique cars out of passion -however I’m noticing more & more folks who are making a Bus out of it driving up prices wich is really a shame–

  • Bob says:

    Porsche is developing synthetic fuel that is supposed to be as “green” as electric cars. So guys, don’t be so quick to turn your classic into a E car.

  • Dave says:

    I agree with Maestro1. I buy what I can afford and like. Some of them, little by little, I spend a lot of money on. And…. I’ve had more than a few people tell that I’ll have more into it than it is going to be worth. My comeback? “Do you expect a return on your golf game?” (Assuming I’m not talking to someone like Tiger Woods.)

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