As most you know I follow and absorb any and all available intel on the classic car market that I can get my hands on. The classic car market has seemingly been slipping in the last 3 years or so but few have really noticed. The market as a whole remains strong for the finest examples of most marques, but anything less than the best is getting pounded. After analyzing Pebble Beach results and a couple of auctions since then, I’ve been chatting with friends, collectors, and dealers. I think we all have been missing a small change in the tax laws that are now affecting the greater market as a whole: the 1031 exchange. Another reason is market liquidity or simply, cheap money. The third impact is coming from investment opportunities.
The 1031 exchange allowed you to roll your proceeds from the sale of your item into the next “like” item you purchased. This simply meant you didn’t have to pay the capitol gains for that item. For example, if you were smart enough to buy a 959 in 2008 for the $300,000 they were selling for then, and you hung onto it and then sold it in 2015 for $1.4 million you could take that $1.4M and roll it into another car and not pay any taxes on the change in value. Great! We all love trading up
In our last tax overhaul, that was eliminated for everything except real estate deals. If you follow the market, the high end (prices and values over $1,000,000) has been ever increasing largely because of the 1031 exchange and market liquidity. The Federal Reserve Bank is increasing interest rates, which have been and are still near historic lows. If you look at rates over the last century, they have averaged about 7 percent. Now they have come up to roughly half that number. Hence: cheap money.
After the 2008 real estate market crash the trust in that market vanished. This once-secure market was no longer secure. People fled to tangible assets, things they could see, touch and feel. Cars, watches, art and gold became the new safe havens and real estate became the casualty. However, that was a pendulum swing that has now changed back, with many individuals dumping more than ever in real estate.
Which leads us to the automobile market today. This market as a whole is down.
Yes, 99 percent of the classic car market is way off its high of 2015. What is interesting, however, is the top 1 percent is still very solid and these vehicles are highly in demand. This country’s top restoration shops still have long waits to get your car restored. The finest, proven examples – or original examples – are still at near-record highs. Your 20-year old restoration is not unless you have a very special piece. Porsche manufactured very nearly 5,000 of the Typ 356 Speedsters so, unless you have all of the provenance on an original example, or a Carrera or GT version, or you had a top level restoration, you have just another Speedster. And, sad but true, it’s not a $400,000 car!
So get in your cars and enjoy them as they were meant to be driven.