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Did Someone Yell ‘FIRE!’?

by | February 2016

As we wrap up the first multi-house auction week of the year, the only question I have is: “Did someone yell fire?” The movie was playing but no one was in the theater. This past week in Scottsdale left us asking the question, “What’s the difference between a collector car and a used car?” The auction houses tried to put on a brave face while staring at the eye of the perfect storm. Thinking there were light winds, they moved ahead in a small boat with no paddles. Last year here in Arizona we saw $294,000,000 in auction results hammered over the week bringing the auction houses a healthy $58,800,000 in commissions (10% sellers & 10% buyers) with bidder and entry fees adding a lot more to the bottom line. The rarest-of-the-rare were here in numbers which helped disguise the fact that the more common and pedestrian cars were just filler.

Doubt started building a few months ago as the lots were announced. The big dollar, rare, and desirable cars were few and far between, instead being replaced with much more commonplace metal. The “Ron Pratt effect” was the rumbling we heard all week in 2015 as Pratt sold a large collection of the most rare and desirable of Americana for a whopping $40.44 million through Barrett-Jackson. The other auction houses filled their catalogs trying to compete with the rare and the best.

This year it was not so. It seems everyone had all ready forgotten that RM/Sotheby’s Biennial December auction sucked a quick $73.5 million out of the market just six weeks ago. None of the auction houses wanted to take the lead in Arizona, and the overall results show their lack of effort. Porsche was well represented with more than 100 cars scattered between the five houses, though only a handful were beyond ordinary. Looking at the consignments would make you think it was the year of the 930 Turbo with more offerings than eBay on any given day, and with quality all over the map. If you wanted a new (used) Super Car you found them at every venue. To put it simply, every used car dealer pulled their cars off eBay and Auto Trader, and entered them in the auctions instead. In years past, rare, highly desirable cars had always been offered. This year? Poof! They were gone with very few exceptions. The electricity was never in the air.

The event this year, falling on the last weekend of January, was two weeks later than its normal mid-month dates. So the cars that would normally have been reserved for Scottsdale showed up in Paris on the first weekend in February instead. The Paris auction dates made the European buyers question whether to come to Arizona and rush back across the Atlantic, or to stay home and go to Paris. They stayed home!

Gooding & Company announced a few weeks earlier that they were going to auction three Porsches from Jerry Seinfeld’s collection in mid-March at Amelia Island. Every media outlet from Bloomberg to CNBC had an opinion, ranging from the sky is falling (most) to this being an opportunity for someone to pick up one of his cars. I have good news, its not three cars, its more than a dozen, in fact, it’s nearly two dozen! Oh my God, the Porsche market is coming crashing down! Seinfeld’s selling his collection!

Stop! Jerry has been a rabid Porsche collector for more than two decades. Like all collectors, he made a few good buys and a few bad buys but he always continued to collect. Do you really think Jerry is selling off and that he is going to stop collecting Porsches? Not a chance. Do you really think a dozen or two-dozen cars will make a dent in a collection that he has been accumulating for more than 25 years?

I will say I don’t know how many cars Jerry Seinfeld owns. I don’t want to know. I will also tell you if you have 100 cars (a guess, but I’d take the “over”!) you can’t keep them all running, clean, and serviced without a full-time team of mechanics and detailers, and stock in a battery company. Could you imagine how little time someone in his position has to truly enjoy the cars? Everyone is knocking on his door wanting something; his wife and children are at home waiting for dad. Hell, President Obama went for a ride and drove with him in a Corvette! Jerry’s time to go for a ride in his passions is very limited. If you walked in your garage and decided to go for a ride – but you had so many cars parked in front of the one you wanted to drive that you became a parking attendant for an hour instead of enjoying going for a ride – what would you do? I’d thin the herd, hang on to my favorite ones, and spend my time on the roads. Jerry, enjoy the drive!

The Porsche amateur Day Traders / Collectors / Brokers / automotive advisors / country club buddies tried to ride the coattails of the true collector car market. And they just got bitch-slapped. The true collectors know the difference between a used car and a collected car. The prices of their average cars brought average money as they deserved. And when you deduct the 20% in commissions paid and the $4,000 to $5,000 to get them here, they got slaughtered!

The vast majority of Porsches at the auction were from dealers. Not much special, not much rare, not much exceptional, and not much historical significance. I’ll use 1978-1988 Porsche 930 Turbos as the examples. The 3.3-liter, intercooled, 930 Turbo is not particularly rare as they made roughly 15,790 (for all markets) from which to choose. One such car here was a 36,000-mile 930 with few chips, some faded trim, and wheel caps. This was a nice original car but it was not exceptionally rare. The estimate was $130-to-$160K and it sold for $118,250 all in. When you subtract the 20% in commissions, the entry fees, and the shipping and detailing costs, the seller is lucky if he netted $90,000. This was a decent deal for the buyer. The 930 had decent mileage, but my fear was, “Had it been serviced?”

The easy part is buying one, but the expensive part is completely servicing it and making it a truly safe drive. Tires, brake lines, oil leaks, etc., are an issue with every car that has sat up for some time, and Turbos are the worst. The new owner should not be shocked to find it needs $20K in service when it gets to its new home. The seller, on the other hand, probably had this car for sale for a long time, and I’m sure he expected much more for the car. I’m guessing it will take a long time to get the bitter taste out of his mouth.

The perfect combination of what makes a truly collectible car is in the details. High-level concours restorations take years and they can be ruined with the last five percent of the details or missed details. We saw plenty of Porsches here missing the details; in fact I’d say only a couple great examples qualified this year. The original Porsches need to be low mileage examples, unrestored, spectacularly clean originals, with indisputable histories and great service records. I didn’t see any of those in Scottsdale. I did see a lot of average excuses that someone famous may have farted in but was well used since then.

The Amelia Island sales will be the acid test for the collectible Porsches. The auction houses will load up on the used cars with their owners trying to pass them off as truly collectible and desirable. Remember, they get paid 20% in the end, and they don’t put reserves on anything under the $300K range. The house always wins!  The only thing I’m sure of in the upcoming auctions is that you won’t see “As seen on eBay” posted in any of the windows.

This year the used cars outnumbered the collector cars. A few of our clients we came to meet got on their planes and had lunch at home on Saturday afternoon instead of sticking around and bidding. The overall sales versus the “no sales,” and the prices in either case reflected that. Only $242,000,000 million in cars traded hands, leaving the auction houses to split only $48,400,000 amongst them. They took a $10,000,000 haircut, but – even worse – consignees took a $50,000,000 bath.

Summary of lessons learned this week:

  1. Make sure you know the difference between a collector car and a used car.
  2. Put your used car on eBay, Craigslist, or sell it to a used car dealer and save yourself the aggravation.
  3. Buy what you like and hope it goes up in value; if it doesn’t at least you have something you will enjoy to drive.
  4. The true collectors don’t care if the car market goes up or down; they collect the rarest, which, in turn, is the most coveted.

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