If you’re a traditional investor in stocks and bonds, 2022 has most probably not been the best year you’ve ever had (because if it were, you’d already be out of the markets a long time ago…). Most portfolios are down on the year (even though the rally in the last one-two weeks have helped most out of the trough), and talk of recession, depression and even more massive inflation is plentiful. And yet, there are assets out there that not only hold their value, but actually continue to perform. Most relevant for this blog is obviously the fact that classic cars are very much part of this group!
The Hagerty indices are well known to classic car enthusiasts as benchmarks for various types of classic cars and thereby for investments in these. You should in my view take them with a pinch of salt since classic cars in various shapes or forms remain an illiquid asset class, and if things don’t trade very often and where objects (in this case cars) are not perfectly comparable, it’s difficult to draw any general conclusions. That said, numbers are based on sales prices that have been achieved, so it definitely has worth as a good indication. From that perspective, it’s interesting to see that Hagerty indices are generally up between 5 and 20% this year.
It’s furthermore no secret that in the whole era of zero interest rates which now seems to be behind us, if not for good then at least for quite a long time, classic and collectible cars outperformed most other types of collectibles, and never more so than when coming from the classic brands, i.e. the likes of Ferrari, Aston Martin and Porsche. In today’s world where talk of electrification is everywhere and every manufacturer has more or less advanced plans for a full range of EV’s, it’s easy to think that the big brands have their best days behind them, at least with regards to combusion engines. That my friends, is however completely wrong. Outside of headlines on EV’s and pastures green, the traditional luxury and sports car brands basically sell cars like never before.
In August, Lamborghini’s CEO Stephan Winkelmann (nope, not very Italian) was quoted as saying that Lambo continued to see strong demand which at that point would keep production at full speed for the coming 18 months. He did so on the back of a very strong first half of 2022, where Lambo sold more than 5000 cars. That is still 1500 cars less than Ferrari who posted 6700 sold cars in the same period, 23% more than in the same period a year earlier. Bentley had its best year ever in 2021 and looks set to continue to grow in 2022. And so on. The contrast to mainstream manufacturers couldn’t be bigger, given these on average lost 10% in sales in the first six months of 2022. So what’s going on?
It’s no secret that most of those buying new cars of the likes of Ferrari and Bentley have enough money not to worry about petrol prices going up 10 or 20%. And the number of such people keep increasing. In a study from this summer, McKinsey estimates that the number of people with a fortune between USD 1-30m will in the next five years increase by around 30% in Europe, the US and China. The same study estimates that the market for cars costing more than USD 500′ will grow by 14% per year until 2031, and that for cars costing USD 150′-500′ by 10%. Normal cars? Well, if you believe McKinsey, the sub-USD 150′ market, meaning the cars that make up more than 95% of the total market will grow by a far more modest 1% p.a, in the coming years.
McKinsey don’t necessarily have more of a crystal ball than you and I, so just like with the Hagerty indices, such predictions should be taken with a pinch of salt. The fact is though that luxury manufacturers are selling cars like never before, and more sold cars obviously means more profit. Porsche and Ferrari are the shining stars, with Porsche growing its earnings by 17-18% this year and Ferrari currently making a profit of about EUR 100.000 on every car produced. That’s a number that is almost hard to believe. Porsche was listed as a separate company in Frankfurt in September this year, and is at the time of writing up more than 20% since then. Ferrari was listed in New York in 2015 and is since then up 360%, roughly 25% p.a. Aston Martin on the other hand has lost more than 80% of its value since listing in 2018, and it’s not looking any brighter going forward, at least not right now.
Where does this leave us? As I’ve written about in the last two weeks, I’m convinced that conventional cars will be with us longer than politicans currently estimate. And unless we have a really terrible depression when cars will be the least of our worries, there will be enough rich people to fill the order books of the world’s luxury car brands, especially since these are now present not only in the sports car segment. The Cayenne and Macan make up almost half of Porsche’s profit, and Ferrari will have even more cars to earn a lot of money on with the Purosangue coming next year. So whether its classic, collectible cars as investments or shares of listed luxury auto makers, it certainly looks like there’s worse places to put your money. That’s obviously not more than my personal opinion, and not any form of advice or recommendation. As always, time will tell!
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