If we’ve learned anything in the past two years, it’s that global events have a way of impacting the cars in our garage.
The pandemic upended car collecting—hastening the growth of online selling platforms, pinching supply chains for restoration shops, and contributing to unprecedented demand. The market is still seemingly looking for equilibrium. Just over a month ago—although it feels a whole lot longer—Hagerty reported frenzied bidding and record prices at the 2022 Scottsdale auctions.
Now, the industry faces a whole new crisis that, like the pandemic, is unprecedented in our lifetimes. Most of us (and most of our cars) did not exist the last time there was a major land war in Europe.
Before we talk about the implications of the war in Ukraine on collector cars, it’s worth stating two things explicitly: 1) Any impact on the collector car market pales in importance to the human suffering on the ground. 2) We can’t possibly predict what will or won’t happen. We all know that there are many different ways this could play out, some relatively quick, some more drawn out, and unfortunately all absolutely terrible. But the likely impact is probably not going to be what most people expect.
Since cars are the corner of the universe we cover, however, we will at least explore the potential ways in which the collector car market might be impacted.
The sell-off scenario
The most immediate impact on the market would be a sudden sell-off from well-heeled Russian collectors. We have seen a version of this movie before: In the early 1990s, Japanese collectors, reeling from a crash in the Nikkei index, cashed in on their exotics and nearly tanked the nascent classic car market.
Now, Russia in 2022 is nothing like Japan in 1990 in terms of its economic pull, and its participation in the car market reflects that. Hagerty analysis of shipping data reveals Russia ranks 54th among destinations for vintage cars shipped from the United States (Ukraine is 66th). Anecdotally, we hear Russian collectors, who were locked behind the Iron Curtain during the “golden age” of classic cars, are disproportionately interested in newer exotics. Even there, we shouldn’t overstate their significance. Lamborghini, which just announced it is ceasing sales in Russia, sells more cars in relatively small markets like Italy and the United Kingdom.
Of course, a lot of Russian money doesn’t stay in Russia. I’m writing this from a hotel room in central London. It is no secret that there is a lot of Russian cash here, and it is invested in assets: property (real estate), jewels, art and of course, cars. The Financial Times calls it “the London Laundromat.” The British Government, along with other Western powers, have placed sanctions on a small number of Russian individuals and some of them are already trying to cash in, as Roman Abramovich’s £3bn fire sale of Chelsea Football Club so publicly demonstrated. Yet it’s unlikely we’ll see discount-rate exotics popping up on Bring a Trailer and Collecting Cars.
“I don’t expect them to sell yet—they’ll finance them up to the hilt first,” a very well-established market commentator who wished to remain anonymous told me.
The top loan-to-value rates of car finance deals has corrected over recent years, falling from a terrifyingly precarious 110 percent of purchase price (which assumes a constant level of appreciation) to a much more resilient figure around the 60 percent mark, as lenders realized their risk. But for someone under the threat of having their property seized under sanctions, even 60 percent of their collection’s value could be tempting.
At the respectable lenders, that’s not yet happening, as Rob Johnson, MD of Classic & Sports Finance told me. “The phones are quiet, nobody is ringing yet,” he said. “I think most people are stunned and hoping things will get better quickly.” But Johnson might not be the sort of lender to whom these collectors turn. These would be high-risk finance deals, after all. Guess who might be willing to underwrite those? Yep, it’s Russian banks. If that funding is cut off, the middle men—the finance houses on the more risky end of the spectrum—may find themselves in trouble.
The trickle-down effect
The likelihood of an acute crisis, whereby formerly Russian-owned cars flood the market, is far-fetched for now. Far more likely, if not inevitable, are the more mundane issues that accompany broader economic slowdowns.
Start with rising gas prices. This time last year, Brent oil traded at about $63 per barrel. Today, it is roughly double that figure, having risen by over 5 percent in a week. In the United States, where the Federal government just banned Russian oil imports, AAA reported gas prices have increased $0.45 in the last week alone. The impact will go beyond eating into our cruising budgets.
“As a result of the sanctions another round of inflation is possible that may push to low double digits,” said Dr. Daniil Manaenkov, an economic forecaster at the University of Michigan and a lead research area specialist at the Research Seminar in Quantitative Economics.
Meanwhile, the global transport system, already creaking under the strain of the COVID pandemic, now has to deal with western European powers desperate to prepare for a possible land conflict. Those bushings you special-ordered from Germany? Probably not top priority at the moment.
At the higher end of the market, some collectors, especially in Europe, may feel guilty about buying a classic car at a such a time, wary of any show of exuberance. On the other hand, they might see cars as a safe place to park their wealth until the storm blows over. “When you know inflation is coming, the natural thing to do is to try to protect your wealth. You borrow at as low an interest rate as possible and buy something that keeps value,” noted Manaenkov.
Finally, and hardest to quantify, is the addition of yet another level of uncertainty to a global economy that has already had its fill of uncertainty. Manaenkov lists a cut-off of Russian natural gas to Northern Europe and retaliatory Chinese sanctions among gloomy scenarios that, weeks ago, would have sounded wildly unrealistic. While collector car market swings have historically been less dramatic than the market writ large, they are nonetheless subject to the same inputs.
The bottom line is, does the bottom line really matter?
Our collector cars will, almost certainly, be more expensive to drive this summer due to the sanctions. Most of us, it should be noted, are just fine with that. Wide majorities of Americans—who can agree on almost nothing these days—say they support an import ban even if they have to pay more at the pump. In the United Kingdom, where an official ban still is being weighed as we write this, dock workers are refusing to unload Russian barrels.
Moreover—and I really mean this—if you’ve followed our advice over the years and bought with your heart rather than your bank account in mind, you shouldn’t be disheartened. Yes, your fuel may cost more at the pump. You may have to pay more for your parts. Some values may drop, others may rise. But if you bought your car because you loved it, then it may be just what you need right now.
“The situation is so unbelievable at the moment, we just have to get on with life,” Martin Chisholm, proprietor of the Classic Motor Hub told me. “More than ever, people want to escape from the news, and if they love driving, they want to get out and enjoy their cars on the road. Demand for our events is as strong as it has been since the lockdown lifted, if not more so.” That’s something that Hagerty UK has experienced too, with an unprecedented number of requests for information on our events over the spring and summer. Whatever happens, let’s get out on the roads and enjoy our cars for the moment we’re driving them. That’s what they are for.
John Mayhead, publisher of the UK Hagerty Price Guide, will be on temporary leave to support the efforts of the Ukrainian Embassy in London, helping organize the provision of medical equipment into Ukraine. To find out what you can do, he suggests visiting the center of the Ukrainian World Congress, https://www.ukrainianworldcongress.org/about/.