#45 - 2024 Predictions
My search was short to find a fitting denouement to 2023. Fortunately, my 3 year old son midway through shooting up another portion of toddler crack cocaine (AKA Pepper Pig) came up with a suitable conclusion….”Yuck, yuck, yuck”.
We already knew at the start of this year that a perfect storm of economic headaches had been brewing through 2022 and much like the dear fisherman on the Andrea Gail, sometimes you have to take your hand off the wheel and run with it. Be it the hangover from a decade of cheap and too readily available money or the natural and necessary post-pandemic adjustment in car prices, 2023 has hit the automotive sector hard.
As always, a separation between mainstream and collectable markets is necessary to achieve a more complete understanding. With the former, we alluded to the possibility of new car supply manipulation by OEM dealers last year. This worked well for them when demand was strong and consumers felt financially “buoyant”. The reality now is that while long waiting lists technically still do exist on many premium brands, dealers are also sitting on a boat load of brand new unsold physical cars from cancelled orders. So while you may well have to wait 2 years to get your new Range Rover in your exact spec, “if sir is happy to forgo rear heated seats, we can have the car with you next week and at a £10k discount to list price”. I implore you to stick your head round the back or up on the roof of your local BMW, Audi or Porsche dealer and see the nightmare that is currently befuddling them.
The bigger headache with this is the knock on impact to the nearly new portion of the market. Oversupply of new cars combined with double digit APRs on financing deals has meant a catastrophic hit to residual values and as we predicted, substantial increases in car finance default rates. Unserviceable interest payments, unfathomable refinancing terms and significant negative equity is leaving many owners in what can only be described as a “financial wedgie”. Sprinkle over a gaggle of spivs who still believe they can make an easy couple of grand flipping their M3 Touring’s and you get a pretty good idea of where the market is at the moment. In fact there is no better bellwether than a lightly used PTS 992 GT3 offered for sale at pretty much list price……”List Price Richard!”
As to what happens next for this subset of the market, I see a protracted and awkward return to pre-pandemic market dynamics. Depreciation in car ownership returns as the norm along with higher for longer interest rates which will never return to the depressed levels we got all too comfortable with over the last decade.
Moving over to the collectable side of things and it is a moderately more optimistic albeit equally confusing backdrop. You see, the biggest problem with times of uncertainty and very akin to issues we faced post Brexit in 2019 is that liquidity dries up. By this I mean less buyers and sellers actively engaging in the market and instead preferring to sit on the sidelines and wait for events to unfold. Now the common misconception here is that a reduction in liquidity is inextricably negative which must mean prices are softening and it has become (that god awful phrase) a “buyer’s market”. The reality however is that most sellers will hold off transacting until they see liquidity/normality returning to the market. The only caveat to this being sellers who do not have the luxury of waiting to free up their capital and find themselves the antagonist in a dearth of liquidity. They are however the exception and not the norm.
The interest rate move has undoubtedly had an impact on this portion of the market even though there is much less leverage. Owners still have rate exposure to their cost of capital in one form or another (be it mortgages, business loans etc). That said, looking at our sales over the last 12 months, while time to sell has pushed out 2x longer than it was in 2022, prices remain flat YoY.
This muted market backdrop is further contradicted by some colossal sales result this year globally. Last month, RM Sotheby’s achieved a record $51.7mm for a Ferrari 330LM/250 GTO making it the most valuable Ferrari sold at auction and the second most valuable car sold at auction ever behind the Mercedes 300 SLR Uhlenhaut Coupe they sold last year for $142mm. Bonhams also had success with a Ferrari 412P in the summer achieving $30.255mm at their Quaile sale. Thematically, the top end still appears impervious to economic headwinds particularly in the US while European buyers continue to capitulate on sustained dollar strength.
So what of the next 12 months and specifically what looks appetising as we move into 2024?
Well first and foremost, while my underlying tone may well appear negative, I do see green shoots emerging as we move into 2024. It is too early to claim a central bank victory against inflation but the aggressive hawkish stance taken by policy makers over the last 12 months has had an impact. With Swap and other lending rates continuing to point lower, I believe a renewed confidence will grow for the market with more consumers and investors stepping back in. The only Elephant in the Room being the possibility of a Labour party coming to power in the UK following a general election.
For the collectable car universe, thematically I see an ongoing Flight to Quality playing out. Through 2022 the collectable market saw rampant and arguably irrational demand for all assets with little regard for their quality. A 10k mile E46 M3 CSL with no service history or provenance was achieving the same amount of money as an identical car with 15 main dealer service stamps and a wad of supporting invoices and paperwork. In 2023, this dynamic began to shift as investors and collectors became more diligent and wary when it came to what they were buying. This attentiveness will persist into 2024 as investors continue to look for safe havens to park cash.
The Flight to Quality will also playout in the marques people are focusing on. Without question and much to Porsche’s exasperation, 2023 was the year of Ferrari. Be it their overall Le Mans victory 50 years after they last took part in the top flight category or the record breaking auction results, investor/collector sentiment has never been stronger in recent years for the Cavallino Rampante. That said, my focus remains on cars from the Montezemolo era and older (2014 and back) as these were the last cars to really remain true to the original routes of Enzo.
Examples that jump out as too cheap to me include V12 beasts such as the 599 GTB, 612 Scaglietti, 550 Maranello and the 456. In fact, the 456M GT is probably the pick of the bunch. The later Modificata cars came with improved aero and a more contemporary interior. While power output was unchanged from the glorious 5.5 litre F116 V12, the firing order of the cylinders was adjusted to reportedly improve smoothness. Pay £50-60k for a really good one with usable miles and enjoy it….these will be worth close to £100k in the next 5 years.
From a slightly older vintage, Ferrari 308s continue to look incredibly interesting from a value perspective. Benefitting from the smooth and curvaceous lines of the 60s and early 70s Ferrari’s yet still with a hint of 80s “boxeyness”, if you asked someone to draw a picture of a mid-engine Ferrari it is very likely to share the silhouette of the 308. These cars continue to trade too cheap to 246 Dino’s and I strongly believe early fibreglass and steel bodied carb cars are the pick of the bunch. Focus on the GTB’s over the GTS’s and in any colour apart from red…..they will be over £200k in the next 5 years.
Another interesting trend to consider and off the back of persistent US Dollar strength has been dollar base collectors finding value in European and Asian markets. An exacerbator for this is the US “25 Year Rule.” Officially known as the Imported Vehicle Safety Compliance Act (IVSCA), in 1988 the National Highway Traffic Safety Administration (NHTSA) rolled out a piece of legislation with the ultimate goal of preventing imported vehicles which did not meet US safety and emissions standards from being on American roads. As a result, many non-US manufacturers limited the models they sold into the US owing to the costs involved in achieving conformity. Fortunately in 1999, the Act was amended to include a “25 Year Rule” which allowed for non-conforming IVSCA cars to be imported into the US once they hit 25 years of age.
Given the size of the collectable market in the US, we have historically seen huge price moves in non-confirming IVSCA cars from Europe and Japan as they approach their quarter century birthdays. With the generational transition of wealth and general appetite for late 90s and early 00s collectable cars at the moment, there is the likelihood of a substantial jumps in the price of certain marques and models. As an example, early Renaultsport Clio V6 230s will be eligible for importation into the US from ~2026 and we have already seen some North American buyers trying to get ahead of the curve and warehouse cars in a similar vein to what we saw with R32-34 Nissan Skyline’s.
So in summary….. while 2023 has been a tricky year and “Yuck” is possibly better replaced with an identical word beginning with an “F”, there still remains huge amounts of value in the collectable space. As always, QUALITY IS KING….both in terms of the cars we hold in stock and the advice we are sharing with our customers both new and old.
Wishing you a very Happy New Year and a prosperous 2024.
Happy Motoring,
Greg