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Car News:  Oversteer

What Makes a Collector Car Price Bubble Start?

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author photo by Doug DeMuro August 2017

Hello and welcome to this week's round of Ask Doug, your favorite weekly column wherein you Ask Doug a question and, occasionally, Doug provides a relevant response, unless you're asking about your first-generation Audi allroad, in which case Doug simply laughs at you.

If you'd like to be a part of Ask Doug, you can! Just email me at OversteerDoug@gmail.com, and I will read your question and possibly share it with my friends if I think you're particularly amusing. You have little chance of your question being picked for Oversteer, but who knows? You may get lucky.

This week's question comes from an idiot I've named "Al." I call Al an idiot because his question starts with the words "Wazzup Douggg," with three Gs. Oddly, things improve from there, though not when he uses "it's" instead of "its," which is a sure sign of incompetence. Anyway, Al writes:

Wazzup Douggg

On a serious note, I was wondering what really makes a car appreciate in value?

In some of your videos you talk about how the NSX is now close to a 6 figure car and the whole Porsche bubble, Ford GT etc..... How exactly do these trends begin?

Does somebody just buy a car for triple it's value and people begin to follow? I just have never understood how it happens....

Thanks man,

Al

This is actually a pretty good question, Al, and I'm glad you've asked it to me, a true expert in the collector-car market in the sense that I once purchased a Lotus Elise from a man in California in July, intending to drive it across the country, discovering only the next day that it didn't have functional air conditioning.

Here's what I think happens, Al. Early on, most cars depreciate, as you know. You buy a 1988 Porsche 911 in 1988, it starts to lose value, and eventually it's just a "used car," worth much less than half of what it cost new. This happens to virtually all vehicles, except for the reeeeeally limited-production stuff like the GT3 RSs and 918 Spyders of the world.

Eventually, the newer models become very far removed from the older ones. Very far removed. Eventually, the 1988 Porsche 911, which was just a crappy used car, starts to hold some nostalgic value, because the new one has Porsche Torque Vectoring and Porsche Dynamic Chassis Control and Porsche Doppelkuppling and Porsche Breakfast Cereal and Porsche Transparent Windows and Porsche DVD Rental Service, and people want to go back to basics.

So what happens is, car enthusiasts start buying the old one. They like the new one, but they really come to appreciate the old-school simplicity and design of a car they lusted after in their youth. The interest grows. The latest 911 is objectively better, sure, but the old one has that "certain something" a classic car possesses. It's cool. It's basic. It's fun.

As this demand rises, prices start to trend upwards. A little rise in prices makes sense: The car is aging to the point where it's no longer just a boring used car but rather a fun vintage vehicle. A car that was $20,000 last year is suddenly $30,000 this year. Suddenly, the people who had the car when it wasn't worth much are starting to see an opportunity. "Jimmy," an accountant in the suburbs of Omaha who had his $20,000 car, notices the increase in values and sees a chance to get a kitchen remodel out of this whole thing. He lists it for $35,000, hoping to snag someone with too much money.

And that's exactly what happens, because this is right around the time the speculators come in. The speculators are people who live on the coasts, or maybe in Chicago, and they're sort of into cars, but mostly they just have a lot of money lying around and nothing to do with it. They don't really know what makes "X" 1988 Porsche 911 more valuable than "Y" 1988 Porsche 911, but they do know they just found this thing on Autotrader in Omaha for thirty-five grand, and it's a diamond in the rough. Jimmy settles for thirty-two.

Suddenly, this car's ownership group has transformed. The Jimmy-from-Omahas of the world no longer own these things, having sold out quickly to enthusiasts, or -- a little more slowly, for more money -- to speculators. And now, cars that were once owned by people barely scraping together enough cash to own them are suddenly being driven to Hollywood premieres. They're featured in celebrity Instagram posts. They're "cool" again -- and the number of available cars is tightening, because the Jimmy-from-Omahas sold their cars the moment they made a profit, and the new group isn't going to give up the reigns so easily -- unless, of course, there's more money to be made.

And now, that 1988 Porsche 911 is a $50,000 car, because why would the speculator lift a finger for anything less than a $15,000 or $20,000 profit? It's sitting in his climate-controlled garage. He doesn't need to sell. But other speculators want the car, and he cares a lot more about money than the car itself.

So when does the bubble burst? In my mind, there are two scenarios. One is when the speculators lose their cash -- when they no longer just have $30,000, or even $200,000, to throw at random cars they find on the Internet and purchase because they look good. This is an economic downturn. The other is when the price just gets so high that objective people look at it and decide it no longer makes sense. This is when even the enthusiasts have sold out, and the car is solely owned by speculators, and they can't find any further speculators to drive the price even higher. This is what happened to the Porsche 911R, which is now on a rapid downswing.

And so this is my view on what happens during a vintage-car pricing bubble -- and, in some markets, it's clearly happening right now. But there's good news: Even though you may think your favorite car is no longer affordable, I've talked to many people who felt that way in the 1990s, and even more who felt that way in the 1980s. I once spoke to a guy who saw, in his 20s, Ferrari F40s selling for over $1 million -- and he thought he'd never be able to afford them. Twenty years later, he picked up one for half that. The market will contract. There will be another recession, even if it's years away. The bubble will burst. And maybe, someday, you can be Jimmy from Omaha.

Doug DeMuro is an automotive journalist who has written for many online and magazine publications. He once owned a Nissan Cube and a Ferrari 360 Modena. At the same time.

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This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
What Makes a Collector Car Price Bubble Start? - Autotrader