Will inflation take the air out of collector car values?

by John D. Stoll
1 May 2021 3 min read
Photo by Getty

We are now in the second year of the pandemic, and the classic car market is holding up as well as anyone could have expected. While live auction sales are still down in the first quarter of 2021 compared to the same period in 2020, online auction sales have nearly doubled. The rise of the virtual marketplace has been great for the stock market, cryptocurrencies, and just about any company that delivers goods or services to your door. Where would we be without the internet?

The economy’s horizon, however, is never without its share of dark clouds. Market watchers say the 40-year lull in U.S. inflation rates could soon be disrupted amid central bank mandates, stimulus spending, stalled globalization and other market factors. The value of the dollars in your pocket could fall as government gets bigger, Fed policy tightens, wages and taxes rise, and debt shifts from households to the public sector.

“We believe a secular turning point for both inflation and interest rates has arrived,” Bank of America investment strategists wrote in a strategy paper focused on collectibles and published in late March. Producer prices rose 1 percent in March and spiked 4.2 percent over the last year. The prices of goods, meanwhile, skyrocketed 7 percent. These trends could accelerate amid hot post-pandemic demand and lingering constraints on supply. As GDP is poised to sizzle at potentially the highest annual rate since 1983, economists say inflation will be right alongside it in the frying pan.

What should car collectors do to prepare, particularly if inflation becomes more than just a transitory blip? Remember, long-run spikes in inflation are killer if you’re feeding a family on a fixed income. You can only swallow rising milk and gasoline prices for so long before you go asking for a raise or picking up a side hustle.

Its impact on the collector car market, however, isn’t as cut and dry. We generally don’t have reliable data on collector car values from the last era of major inflation in the United States, the ’70s and early ’80s, but we do know how other tangible assets—namely art—performed. Generally, they did well. Sales of high-end collectibles “dry up most” during recessionary periods, according to a recent study by Deloitte; however, they can be, if anything, more attractive during periods of inflation.

Consider the advice given by the well-known investor James Sinclair in 1978, a year preceding two consecutive years of double-digit inflation: “Intuitively, collectors, whether passive or not, know that the value of tangibles invariably rise during periods of inflation because what they want costs more each day,” he told the New York Times. “When inflation becomes institutionalized…the collectibles that tend to appreciate the fastest are portable and private.”

Indeed, collectibles were not just a cautionary play during the inflationary ’70s and early ’80s—they were engines for profitable growth when yields were otherwise hard to find. Anita Heriot, president of Pall Mall Art Advisors, said real assets like jewelry, paintings and watches represented a solid bet in that era. In the 1970s, when economic “stagflation” was king, Bank of America said real assets far outperformed popular financial instruments like blue chip stocks, government bonds and cash. In contrast, growth in the art market has been lackluster during periods of low or no inflation.

“The only asset that is a hedge is an asset that will hold its value, and ultimately increase its value,” Heriot said. While sensitive to economic cycles, artwork and other “passion assets” that can be seen, touched, or driven hold value because they are popular and scarce at the same time.

That doesn’t mean any classic car (or painting or watch) will hold its value during a period of inflation. Hariot notes that plenty of trends in the art world could go bust, and the same holds true for segments of the car market. Conventional wisdom says the best inflation strategy is to hang on to the tangible assets that you have, and look for ways to acquire more at attractive prices. Just be sure those assets—whether parked in the garage, sitting in a vault, or hanging on a wall—have underlying intrinsic value. If you feel something is overvalued, now might be the time to sell it and grab something a little more stable.

Overall, though, demand for collectibles like art and cars is expected to outstrip supply for years to come, thanks to the number of collectors emerging from the millennial crowd and the expansion of online selling platforms. If inflation takes hold, car enthusiasts might be joined by investors looking for real assets.

Comments

  • Susan says:

    What will happen to our classic car values if in fact Biden gets rid of gasoline?
    Thank you

  • gary duncan says:

    AWESOME PERSPECTIVE ! DUNCANIMPORTS.COM

  • Rokky says:

    Classic cars have been over priced for some time now.
    The Big money collectors are controlling the prices.
    Have you noticed how the same cars go trough the same auction houses time and time again.
    The only ones that are interesting are the “No Reserve” ones.

  • claude mainville says:

    I am vastly concerned about my classic car which uses petro with electric cars coming will gas petrol still be available I wonder about that

  • Rick L. says:

    If I was a big investor (and I am not) I think I would be more worried about the taxation if I sell for a profit as capital gain taxes are going to be going up. However, if there is enough “expenses” related to the purchase/sale there is “no” profit. If you buy/trade enough and process through as a 1031 transaction things get pretty muddled up and perhaps you end up with a capital loss.

  • Ray Ashenhurst says:

    Inflation is like rolling the dice. Sometimes you get a good roll, other times you lose. That is what happens when you deal in collector cars. Some people know the odds, most of us don’t. I bought a used sports car 54 years ago, kept it in as original condition and it has appreciated 693%. Of course that’s paper profit. If I were to sell it, the capital gains tax would be a real bummer. So I keep it, and drive it. I bought it to have fun with, not as an investment. The purpose of having it has not changed, however. the increase in value has certainly put a chill on the fun side of owning and driving it. On second thought, maybe slowing down the fun ride is a good thing at my age. I go on rallies with the local Porsche dealership and always thought that it was my job to make the younger Porsche drivers proud of their car’s heritage. Not so much anymore, I don’t want to be tomorrow’s headlines. Now I just grin, knowing I have the most valuable car in the gaggle. It’s just the luck of the buy. Absolutely no market insight, just young selfish fun and a tool to attract woman.

  • Stanley V Harris says:

    I believe Biden will be gone long before we see the end of gasoline powered vehicles.

  • Ray Ashenhurst says:

    This is in reply to Susan. Please research the connection between Biden and gasoline. The banning of combustion engines was started several years ago in Germany. A resolution was passed and agreed to by the sixteen German states to ban combustion engines by 2030. This needs to be enforced by the EU. So far, Austria, Belgium, Denmark, Greece, Ireland, Lithuania, Luxembourg and Malta have agreed to this, a date has not been set yet. GM sees what is happening and set it’s own course for all electric. Yes, President Biden certainly agrees with this, as should all people that want to continue breathing on a living planet.

  • Tim Bowles says:

    Biden says he’s against petroleum, and is pushing electric. That’s not good considering jaguar and others say they want to go all electric. Couple that with mega inflation from non stop gov spending, and the future is not looking bright.

  • MustangJim says:

    Interesting article and timely ( unfortunately) . With what is going on in our economy inflation is likely inevitable, you can’t keep giving money away!
    I think that the high end collector cars, that is the rare special car that drive the auction stories will go up or at least remain stable. But, I think that the lower end collectibles, the ones that are only now getting attention like the Fox Body Mustangs, 70’s and 80’s Camaro/Firebird and the many imports that are now popular , BMW, Toyota, Acura, etc.. may go down but affordable classics are based on disposable income. With inflation that disposable income from the “upper ” middle class dries up. The one percenters ( not being derogatory, I wish I was one) will continue to have safe havens in Boss 9’s, L-88’s Hemi cars, etc…. Just my thought.

  • Richard says:

    why worry about it unless you have millions and millions in collector cars. And why would you be worried about capital gains unless you are foolish enough to classified as a dealer, then it applies not for a hobbyist. As for biden and electric cars….well we will all be gone before that pipe dream becomes reality, but wait speaking of biden…he’s already gone!

  • Timothy Crofoot says:

    I am not getting into politics but Joe has classic cars in his garage. Look up online the picture of him washing his flaming chicken at the white house

  • Jim says:

    Oh Please! Have you ever heard of electric powered farm implements? Just drive a short distance out of town to a rural or semi-rural town and buy all the gasoline you want. It will take many years for supplies of gasoline to become scarce. As for inflation, the speculators may sweat a bit but the real hobby car owner is insulated pretty well from market perturbations. Keep what you have and enjoy it (them). Buy if the opportunity and price are right, and if you are so inclined. If your in it for the money, everything is different.

  • Duane Boone says:

    As I watch the tree huggers push for electric vehicles, most are unaware the electric motors have bearings ,shafts and bushings that rely on oil to lubricate them. Those vehicles have batteries that wear out and need replacing . Most will be shocked at the cost of new batteries to keep their cars running when they are 10 years old or so . Nobody will be interested in buying a car due for such replacements either. I don’t view electric cars as a useful means of transportation for me . If you must to stop somewhere to recharge batteries for an hour that will add delays for any travel beyond local trips. You don’t get something for nothing as people say. Vehicle emissions will be lower but electricity demand will elevate . Many plants still use fossil fuels due to the high costs involved in replacing complete generation systems. There’s a price to be passed on down to consumers for refits and changes.

  • Mark Grayson says:

    The article focused on inflation’s effect on the value of classic cars. However, comments quickly moved toward the effect of electric vehicles on the values of classic vehicles. Commenting on inflation, history shows the rich 5% always do well, while the rest suffer. This assumes an extended period of steep inflation that requires most to sell assets, i.e. collector vehicles. On the subject of electric vehicles, they will be short lived unless they can be competitive cost wise. Remember Sony’s Beta technology was clearly superior to the VHS format, but VHS won that battle due to value. When a electric motor comes along that beats the combustion engine on cost to operate, and not by driving up the price of petroleum, then the world will embrace that technology.

  • Steve DeMoe says:

    Ray and Susan, Electric car batteries are and will continue to build up, they stack easily but the cars the batteries were installed in do not stack so easily. Have you seen the electric car graveyard in France – google. It will only grow-waste! As for all the foolishness about global warming etc, there’s a volcano in Iceland right now that is spewing H2SO4, CO, and many other gasses that destroy in minutes what it costs wealthy nations years to correct. We’re NOT going anywhere, the earth produces oil & natural gas continually and we should be concentrating on REAL threats like Greta Thunberg & Vladimir Putin.

  • Martin J Perry says:

    No one is getting rid of fossil fueled vehicles so fast. There are still a great many issues that must be dealt with first. An oil based economy does not disappear overnight, no less a few decades. A President does not wave his or her hand and something becomes the law of the land. The actions of Mr. Trump should have taught you that. There needs to a basic agreement and understanding between those that drive finance, those in government, and the ordinary people for this to move forward.
    Presidents set goal and aspirations for the nation. It takes a few political cycles change course. Regardless of what a president says or does, we are moving in a new direction. Classic values will inevitably rise over time no matter what. The EV may be just another step in the evolution of personal transportation i.e. hydrogen power, etc.
    At the end of the day there is no foreseeable event horizon that will negatively impact the classic automobile world to any appreciable degree.

Leave a Reply

Your email address will not be published. Required fields are marked *

More on this topic

Hagerty Insider Newsletter

Your weekly dose of auction reports, market analysis, and more.

Thank You!
Your request will be handled as soon as possible
Hagerty Insider Newsletter
Your weekly dose of auction reports, market analysis, and more.
Share