Economics 101

What happens to the car market when other investments tumble?

by Adam Shapiro
10 November 2022 5 min read
Image
Bankrupt investor Walter Thornton tries to sell his luxury roadster for $100 cash on the streets of New York City following the 1929 stock market crash.. Photo by Getty

Rarely has it seemed so vital to understand how markets cycle. As 2022 draws to a close, the stock market has become Pontiac Aztec ugly, with the S&P 500 losing 25 percent of its value from its January peak. Bonds, typically an island of stability, safety, and value, hit bargain basement prices as large pension funds and institutional investors sold them off to raise cash. 

            The collector car market, meanwhile, is riding a years-long hot streak. The Hagerty Market Rating, our bird’s-eye measure of the entire market, broke records throughout last summer and, at press time, remains near its all-time high. Following the sage wisdom of Blood, Sweat & Tears (“What goes up, must come down”), it’s only natural to ask how long that can last.

Legendary financier and investment banker J.P. Morgan said, “I made a fortune getting out too soon.” Right now, millions of Americans, some invested in the stock market, others holding on to assets like real estate, art, and collector cars, are observing the ups and downs, assessing their portfolios, and asking the same question: How do you know when “too soon” is?

The long game

In bear markets, stock investors find reassurance in the claim that the historic average annual return in stocks is between 8 to 10 percent. Over the long term, the trend indeed is up. But many investors fail to internalize what “long term” really means.

“I’m talking years—no one can predict precisely where they will be at any given point in the future,” said Sam Ro, a CFA and the editor of the long-term investor newsletter TKer.co. “Markets do not move in predictable ways,” he added. “If they did, then I’d be a lot richer.”

The same principles of patience hold in the car market. Over the long haul, most classics grow steadily in value. The average appreciation for vehicles that have been in the Hagerty Price Guide since 2007 is 219 percent.

“Markets do not move in predictable ways. If they did, then I’d be a lot richer.”

Sam Ro, CFA and editor of TKer.co

Year to year and vehicle to vehicle, though, the outcomes differ dramatically. For instance, auction data show that cars purchased and then “flipped” within less than two and a half years stand less than a 50 percent chance of turning a profit. A sheer gamble, in other words. Hold out longer, and your chances improve dramatically—by year seven, auction sellers make money 95 percent of the time.

“I would say the car market is much slower moving than traditional financial markets. The swings aren’t as dramatic and severe. But it definitely has some unpredictability to it,” said David Gooding, President, and Co-Founder of Gooding & Company.   

Given that unpredictability, hard-and-fast rules and get-rich-quick strategies often fail the pressure test of the real world. Take for instance, the “7 percent rule.” Very simply, the 7 percent rule is a strategy to preserve capital and cap losses, in which an investor sells a stock when it falls 7 percent or more off its purchase price. Sounds great, but David Nelson, Chief Strategist at Belpointe Wealth Management and host of “The Money Runner” podcast, notes there’s no guarantee that the next thing you invest in will do any better, especially in volatile times like ours.

“I talk to a lot of hedge fund guys that are really good asset allocators,” Nelson said, “And right about now, they don’t know where the bottom is.”

 Also keep in mind that knee-jerk reactions can cheat you out of the returns you might have seen if only you’d stood pat. “Part of the deal when it comes to achieving long-run returns is understanding that you’re going to have years where the market is down 20 percent,” said Ro. Car collectors, he adds, have the benefit of being able to, you know, enjoy those investments, even in “bad” years. “Sure, the market value of classic cars, or maybe even the specific car that you own, might be falling. But unless you go in and sell, you’re not actually realizing any sort of fluctuation in the market,” Ro said.

Cars in the fast lane

Although there’s no magic number or strategy when it comes to market cycles, there are some historical patterns worth understanding. Perhaps the most important at the moment, for collectors, is the way in which tangible assets perform during tough times. In the words of a recent Credit Suisse report on collectibles, “…cars have a negative correlation with most assets, showing some counter-cyclical properties.” Translation: When stocks and bonds go down, cars go up.

Wall Street and its high net-worth clients have always hedged their traditional investments with assets like classic cars—ultra-high net worth portfolios allocate an average of 5 percent of their wealth to collectibles, according to Credit Suisse. (For comparison, the average allocation for gold is 3 percent.) Collectibles become particularly important during times of uncertainty, the report notes, as “precious stores of value…with prices based on scarcity and societal value” rather than the gyrations of the economy.   

That is one reason the collector car market—particularly its higher echelons—shifted into high gear just as more traditional investments, stocks, and bonds ran out of gas over the last year. The Monterey auctions in August set a record of more than $470M, and Hagerty’s Blue Chip index, which averages the values of 25 of the most sought-after collectible automobiles of the post-war era, gained 3 percent in the third quarter of 2022.

The attractiveness of collector cars as an asset class in volatile times can become a liability, as it on occasion draws money-minded speculators who don’t sufficiently understand what they’re buying. See: Ferraris in the late 1980s and, to a lesser degree, air-cooled Porsche 911 Turbos in the 2010s.

“We certainly see people who are a bit more speculative at times, and depending on how the markets are doing, those players do come to the fore and make their presence known,” said Alain Squindo, the Chief Operating Officer at Broad Arrow Group. But, he added, we’re generally not seeing that. “By and large, it is fundamentally a passion play.”

That last observation is bolstered by UBS’s report, The Value of Collecting, which found for most people, collecting is about passion over profit. “They spend significant time and money building their collections, driven by a deep passion for their subject.” The report adds that “62 percent of collectors have never sold an object in their collection, generally because they have such strong emotional ties to it.” So much for the 7 percent rule.

The most important thing to consider when “timing” the market—any market—may be the common disclaimer SEC-regulated financiers are required to share with their clients: Historic performance is no guarantee of future performance. On Wall Street and in Las Vegas, this means the house always wins. For car collectors, it’s a license to put your passion first—because trying to play the game for the money will seldom get you anywhere.


Adam Shapiro is an award-winning financial journalist and a car nut who admits to being an awful mechanic, even though his grandfather had a junkyard in Portland, Maine. Shapiro has covered the Federal Reserve, the White House, and Capitol Hill for Yahoo Finance and FOX Business. He established the FOX Business Networks' annual coverage of the Pebble Beach Concours in 2008.

Comments

  • Jim Rosenthal says:

    So we should buy what we enjoy working on and driving, right? Because we don’t know whether it will gain in value or lose in value, isn’t that right? And a vintage car, or a vintage guitar, is enjoyable whether its market value has gone up or down, right?

    It just seems to me that this is the advice I’ve heard (and it’s good advice, mind you) for decades now. My cars are, I suppose, worth more on paper than I paid for them. But I don’t drive them on paper. I drive them on the road.

    I’d suggest that you try and determine whether a particular subject has already been addressed before you spend magazine space, and your credibility, on it. Of course, if you just need to fill the space up, well, that’s another problem entirely.

    • Paul Ipolito says:

      @Jim – I agree. A lot of space wasted telling car folks what car folks should already know. Buy a car because of the emotions it stirs in you and drive the bejesus out of it. My wish for every car I have owned is that nobody will want it after I get through with it because I never passed up a chance to drive it.

      • Gary Frenkel says:

        I’ve been buying, tinkering and most of all driving and flipping old cars for over 65 years. I currenty have 9 classic cars in my collection from brass era to classic 50’s. Eight of them I’ve had for many years and would cry like a baby to have to part with them. Soon I will have to do that. The hobby for me was about making extra money with them, but also playing and most of all driving them. I always made a few bucks flipping them, regardless of the economy. Nobody has a crystal ball as to future values of our beloved toy cars, but they are a fabulous investment that you can enjoy and have fun with and at the same time add a few bucks to your pocket. If you are in it for the money, remember this, “all of your profit is made at the time of the buy”. Have fun guys, this ain’t no dress rehearsal. You only get to go around once!

  • Hannes Tanzer says:

    Interesting and helpful article that confirms that quality usually stands the test of time and values go up eventually.
    As long as enjoyment is put above investment then there is little chance for disappointment.
    Unlike gold, art or stocks & shares – the right vehicle provides emotional and physical pleasure irrespective of current or future value.

  • Rick L. says:

    I ran an exhibition facility about 10 years ago where we had monthly antique shows, and two very, large (over 4,000 exhibitors) semiannual “Extravaganzas”. When I started there the crowds and exhibitor base was large. As the years went by the crowds went down, as well as exhibitors. The “younger” generations just not as interested as the “boomers” in their prime. Moral of story, investments go up, but can also go down. Markets are fickle. The high-end cars, just like art will remain high. Those from only a specific time appealing to a specific demographics may go down. Invest if you will, ride the tide. Or buy what you love, love what you drive. I live by, “Motion is Lotion, Rest is Rust”. If you are hung up on investment, the stock market is up and down but over the long run it typically is up. I sell when high, buy when low, I call it the “It’s a Wonderful Life” George Bailey summed it up during the bank run “Potter is not selling, he is buying”. Look for bargains from those that panic in bad times, then sell high to those same people in good times…but be careful.

  • Maestro1 says:

    It’s absolutely true that the car market moves slower than other markets. Here on the Left Coast I’m seeing some mild contraction, nothing to get excited about, maybe 5% to 7% shrinkage. I would
    not get out of anything. The value of cars, like fine art, won’t suddenly contract. Reason: There’s
    more money than cars out there, and the money will push the values. We don’t have rust issues here, which substantially lowers the cost of reconstruction, and we do have wrenches who love their work, along with small garages who follow esoteric brands. So we’re in a good place; I’m not sure that everyone else is. I have friends in the Hobby as far East as Vermont, who simply shut down in the Winter and are driving Beaters during that period. A couple of New Englanders I know
    are driving their old Fords around with Hundred Pound Bags of Chicken Feed in the rear, known there as Traction Control. Happy Holidays to everyone.

    • George Patterson says:

      Here in New Jersey, bags of sand is preferred for traction control. It doesn’t rot or sprout when it gets wet.

  • Gary Bechtold says:

    I’ve been debating selling my car but I do wonder if now is a good time to do it.

    • Paul Ipolito says:

      @Gary Bechtold- Tell us about your car. Advice is free here and it is given early and often. Some of it is even useful at times.

  • Jim Harper says:

    Interesting and well written article. A bit bullish on “keep buying those cars!”, which makes sense since you work for Hagerty and that’s important for business. To be fair you left one group of buyers out of your equation:
    Plain old workin’ guys who never buy a car for an investment. They LOVE old cars and if they can swing it at some point in their life, they buy their dream-car…to own and DRIVE. They never make it to concours events and don’t own any art. The guy 50+ yrs old who has been fantasizing about a ’57 Chevy for the last 30 years. The spendable income of these Americans is often based on what they’ve saved and how their 401k is doing. They have to convince a wife that this luxury won’t ruin them in another 10 years when they need the money to survive. Those guys will NEVER put their own interests first, so if their 401k is way down, their grocery bill has almost doubled, gas is still high, and upcoming heating bills will be 2-3x higher this winter, they are not going to make the move. This group is important because THEY are the ones who buy local cars based on local and web-ads. And across this country, they buy a bigger volume by far of all the classics that sell. They just don’t buy the glamorous $3m Ferarri at auction. Add to this the insanely over-inflated prices driven by Bring a Trailer, and these guys are gonna pull back…for a while. It’s a street-thing, Bro.

  • Erik says:

    The problems with comparing car collecting returns with stocks:
    1) Insurance and registration
    2) Maintenance costs
    3) Storage costs (garage space, associated equipment, etc.)
    4) Unlucky damage leading to depreciation
    5) Mileage
    The last is probably most important because I want to drive my cars. Stocks cost virtually nothing to hold or trade. How many car collectors truly factor in all costs when comparing returns? Not too many I’d guess. Hopefully some good cars will start selling for reasonable prices again soon.

  • Thomas Tisthammer says:

    Amazing grasp of the obvious; Credit Suisse?? Beware the demographics…

  • Larry D says:

    In our town of about 2500 people, we have an annual cruise-in and driving cruise in August each year. It began in 1992 and of course with it being a new event, it was standing room only both for spectators and participants.

    Naturally, as the years went on, the size of the crowds died down until they reached a fairly stable level for a long time at around 600 cars registered and entered. My wife and I both had old cars that we took to the event. But I noticed that in the early years, the kids and teenagers loved seeing all the old cars. And as the years went on, it became that kids that age didn’t seem as enthused as they used to be. And in the later years that we participated before my health became a problem for me to be there, I saw very little interest from that same age group. Instead of watching the cars go by and yelling and waving at people they knew in the cars in earlier years, most of the kids and teens were either on their phones or playing some sort of video game.

    The event itself has been dying a slow death for years as well. There was an event in Tennessee shortly before our event one year in which a participant was acting like a damn fool and lost control of his car and hit some spectators. Well, that scared our town a lot. They could foresee that happening here and the lawsuits rolling in. Also, most of the merchants who helped fund the event previously pulled their sponsorships out, not wanting to be associated with the event just in case. And even our local radio station whose owner loves old cars and plays oldies on two of his stations quit making announcements for the upcoming cruises.

    Then one year, they were repaving some of the streets the event occurred on, so the town cancelled the event. And then we had Covid, so there was another year with no cruise. They don’t even put any info on the internet anymore indicating the date for the event. A friend called me and asked when it was going to be this year and it took me forever to find something telling that information. The interest has just faded away, unfortunately.

    And I will add a side note here. Our town’s event is for cars made in 1972 and earlier. That is because our town did away with two-way streets in 1972 which effectively killed the cruising that used to be done here. So, while that was OK in 1992, its first year, it’s not so OK in 2022. There are an AWFUL lot of people around here who have and/or love cars made AFTER 1972. They complain a lot about being excluded from participating and rightfully so. The year limit should have been raised one year for each year that passed in which case, this year we would have allowed cars that were made in 2002 and before. I know it would seem like just a bunch of new cars riding around but I bet the crowds would have been bigger and the kids would be more engaged and would be waving at their friends they knew in cars cruising by. After all, the 1972-model cars that were cruising in 1992 were only 20 years old then.

    Think about it.

    • Rick L. says:

      Probably a lot of those cars, and unfortunately a lot of those people that were there in 92 are no longer with us or are sitting (the cars) in a barn or garage under a cover. The “market” and the high-end auctions have made folks think that their cars are worth a lot more than they are in real world conditions. Now we are starting to see events like the Rad Shows which cater to the 80’s and 90’s cars starting to catch on. Even Good Guys is opening up to “newer” vehicles because of decline of participation. Many events don’t like the “new” classics, muscle cars, foreign cars. That is why events like Hagerty’s Cars and Caffeine are doing well. I attended the VIR SVRA/Trans Am race and participated and there were over 130 cars entered. I remember back in the muscle cars days at the drags it was loyalty to a manufacturer more than the year. Although I do remember the Hot Rodders at that time did not like Muscle Cars, maybe because it was a younger crowd? Anyhow, enjoy what you have and DRIVE it.

    • Per says:

      As several comments have said already, demographics must be taken into account. Cars from a certain period will go up un price when those who knew them as children/teens. As those people get too old to tinker and drive values for all but a select few cars will fall. So as long term investments either buy very good examples of 20 year old cars that the young ones dreamed of 5 to 15 years back and sell in 20 years from now. Or buy the most expensive 20 year old exotic. Just remember there are no guarantees. The dominance of electric vehicles may make classic use and ownership difficult in the future.

      Or invest in something else and enjoy the classic you have now, regarding it as a luxury pure and simple.

  • joseph Shelby says:

    I notice that Hagerty Price Guide adds value for certain options but I really don’t see where originality or low mileage comes in to play. I have always believed that the original “Chevelle SS” with matching numbers, original paint, bright work, interior, etc. has more value than the well restored car. I am not sure how to calculate added value for this type of originality or low miles. Any thoughts?

    • Bing Rodriguez says:

      Interesting that most here have the general view of buy what you like and enjoy it, buy with passion and not for profit, drive the heck out of it and if you make money selling your pride and joy for what ever reason it’s a bonus. And I agree wholeheartedly!

      So how about the billionaires with multimillion dollar 1960s Ferrari collections, owners of 1 of 1 cars alike and ones that breaks records on the auction blocks through the advice of their high powered/expert broker? These a guys are so wealthy that they can afford just to look at their collection, have a team of people to look after them, ship them to shows and mingle with like minded people. What is their percentage of influence in the market I wonder? Clearly this a different level, and amongst them they drive up prices. Then we go back to “there’s more money than cars” scenario.

      Average Joe here will stick to buying what he likes and enjoy the drive!

  • Richard B. says:

    As I passed the review stand in Houston’s 2022 Veteran’s Day Parade this past Friday the announcer called everyone’s attention to my “Beautiful baby blue 1966 Mercedes Convertible.” Well, I’ve been driving that car for a half century now and that definitely made my day. Several of those 50 years ago, in another parade, I was the lead vehicle, just behind the band, with the parade’s VIP as passenger. My 250SE Cabrio is what I would call a 10 10 car. Looks great ten feet away at ten miles an hour. I have definitely noticed an increase in recognition from all ages as time goes on even though the car is certainly not a show car. Last Friday was one of those blue sky days which make the baby blue really pop. Worth it? You Bet.

  • don cox says:

    I read about “”Classic Car Collectors” but dare say that most owners of Classic cars only have One–& they have it because they like it–Not for the money–(& No payments–it’s paid for)– TV programs would have us believe we can get rich buying & selling–but we have to remember–that’s just TV Fantasy for the most part–

  • mark bouchard says:

    The stock market. pays the bills for my old cars..not the other way around,,yes there is a limited class of people..who own..extremely high end cars..but they are a limited.elite class .of whom I would venture to say,It was something other than..the buy and sell. of classic cafor the little guys like me.. I need way more in the market..than I have in cars , that how I make my living..and thats how I keep, my cars

  • Mark L Bedel says:

    Anything that is so subject to whimsy and emotional swings should probably be avoided if one expects to see a profit in a volatile market like automobiles. Plus, if you follow the standard portfolio logic of diversification, you’d have to have a large enough collection, to balance losses with any gains. I don’t know where that threshold begins, maybe Jay Leno scale? But I’m sure that it is well beyond my means. So I agree with the philosophy of buy what you like and can afford and enjoy it.

  • Gary Dowling says:

    Dear Hagerty,
    It’s obvious from all the investments that you have made over the last few years hoovering up auto related businesses and shows that you view cars as a financial opportunity. I think this is a disservice for most classic car owners, as it sin’t and shouldn’t be about the money. If you have to pay people to work on your cars it’s not an investment it’s an expense.
    My thinking has always been to make cars a self supporting hobby. Buy cars you like, make them better and enjoy them. This mantra will work as long as you do as much of what needs to be done as you can yourself, and don’t build tributes to your credit card usage. So many cars restored to unusability and financial inversion.
    It’s a hobby, maybe Hagerty should be buying investment firms, there’s a good opportunity on FTX/ bitcoin futures you could look into.

  • Jerry says:

    During the last downturn (2008), a local classic car dealer told me that the classic car market is inverse of the stock market. Most of his sales were internet.

  • Russ says:

    in 2001 after the ‘tech’ bubble burst, Microsoft traded @ around $25/share. It stayed there until 2012 then hit around $50 in 2017. Since then its risen dramatically to $335 and is is currently at $225. That’s 21 years. I doubt it will return to $25 – but took over 10 years to move from there and another 5 before it really took off. If I average it out, the investment looks great. But it was dead money for a dozen years at least. I look at collector car prices today and it sure looks like the wrong time to be buying as an ‘investment’. As a hobbyist with excess funds – go for it – otherwise the demographics alone would seem to be against you. And then there’s the politics. Will there even be any gas stations in 17 years? Cities in CA are already restricting them.

  • Paul Kett says:

    One look at that graph and I don’t have a good feeling about where it’s going to go as it continues to progress.

    As far as collector car valuations… does anyone remember going to the collector car auctions in 2007 – 2008? I’m up in Canada and I can tell you the front row seats that were reserved for the big shot collectors from the USA were empty. I also saw a lot of vehicles selling for over 50% of what they were worth a year or two earlier before that market crash.

    Recession anyone?

Leave a Reply

Your email address will not be published.

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