The Economics of Classic Cars

Everyone loves to see a classic car driving down a highway on a warm Sunday afternoon. But some people see these cars beyond a summation of their parts; they see them as an investment. So how can a car, sometimes considered to be a depreciating asset, then be considered an investment?

Let’s begin by looking at the 1960’s Chevrolet Impala. Anyone could pick this car up for around $4,000-$5,000 today. But the same model could be sold at auction for hundreds of thousands of dollars. How can the same old car model range in price so much? It’s all about how many were produced and the history behind the specific car. The Chevy Impala first rolled off factory lines in 1958 and over the course of that year, Chevy produced 60,000 units. It sold for $2,586 for a brand new American V8. Today that would cost $21,798. In 1960, Chevy sold 490,000 Impalas, making the Impala the number one selling car of the year. Today you can pick up a 60’s Impala for less than $5,000. These cars follow the general depreciation rate for cars.

But what about those $200,000 -$300,000 Impalas? Today when you go to buy a new car you get trim level choices. Each trim level is a predefined set of options decided by the manufacturer for each model. The right trim choice could make or break the car. For the Impala, the first trim options were released in 1961 with the release of the Impala SS, Giving it a bigger engine and pages of options for the buyer to choose from, and upping the price to $5,380 then, $45,348 today. In the 1960’s you could change any number of options in the car from a list; you weren’t forced to follow one set level with features X, Y, and Z. If you wanted a complete base model but you couldn’t live without that wood grain interior, Chevy would build you that car. These specialty cars bring in the most money.

The next thing to consider is what state the car is in. Say you find an old car in your grandfather’s barn, the car he had as a kid and forgot he had stored away. You find it 40 years later. It’s got the original engine, parts, and everything, and it still runs. You might as well have struck oil (pun intended) in your backyard. The most important factors for the value of a classic car are condition, mileage, originality, and history. Even though Chevy produced millions of Impalas in the 60’s, there may only be a fraction of those still on the road today. This rarity plays a role in the increase in these car’s values. All original, non-restored, original paint, clean interior- finding a car with these qualities will attract the most buyers for the highest price.

So why would someone want a car from 50 years ago, with poor safety, that sucks gas, and pollutes at an extremely high rate? Nostalgia. The baby boomers want to remember their childhood car and the long road trips with their families, their first car, etc. If you were to follow classic car sales you will see the most popular models are around 50 years old. In the early 2000’s, the cars that were selling were the 1950’s, models. The 1990’s, 1940 cars sold. But as cars get older, they become more expensive and rarer. Some cars will go for millions or even 10’s of millions of dollars. A 1939 Alfa Romeo recently sold for $19.8 million. It was one of 19 in the world of the original 32 produced. The car was extremely rare even when it was first produced. This only boosts the price tag.

So what kind of return on investment can you expect? Well, classic cars have risen over five hundred percent since 2005. That seems too good to be true. The challenge in investing in classic cars is being able to tell which cars are about to boom and which are about to tank. The key is to find the perfect car that balances between popularity and rarity. Another aspect of investing in classic cars is patience. To really make a profit you need to buy a car that you think people will want in the future. Then, store it in a garage and don’t drive it. Classic car investment is not something to make a quick buck. Most of the time you can’t buy one at auction and expect it to bring you profit in a year or two.

Many people consider classic cars to be on the same level as works of art. Many people will collect hundreds of cars; they have massive garages filled with anything from junk yard saves to climate controlled Ferraris that don’t see sunlight for years. The world’s largest collectors take such good care of their cars, similar to that of an art museum. These are the people that are able to sell a car that previously was mass produced for $300,000. Many collections may only have a quarter of the cars go up in value while the rest tank. That is why many of the collectors will have hundreds. They may even have repeat models of the same car they think will grow in value. All of these factors make car collecting remain exclusive to those who already have a deep love for automotive history. However, in recent years people have begun to invest in classic cars as a long term investment. This opens the market to anyone who feels like rolling the dice and guessing which car will boom and what will only sell for the value of its parts.


Sources:

Brauer, Karl. “Automotive Investment Advice: 10 Rules for Classic Car Collectors.” Forbes. Forbes Magazine, 11 Oct. 2014. Web. 07 Apr. 2017.

Havis, Richard James. “Worth More than Money: Classic Cars ‘can Be Very Expensive Hobbies’, but Are Highly Sought after.” South China Morning Post. South China Morning Post, 06 Oct. 2016. Web. 07 Apr. 2017.

Markovich, Tony. “The Complete History of the Chevrolet Impala.” Complex.com. N.p., 12 May 2012. Web. 07 Apr. 2017.

Schepp, David. “How to Invest In Classic Cars.” Usnews.com/investing. N.p., 17 Feb. 2016. Web. 07 Apr. 2017.

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