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note: this article first appeared in the February 2006 issue of Collector Car Market Review. C) Copyright 2005, VMR International, Inc. All rights reserved.
The market for postwar
collector cars, particularly premium muscle cars, is soaring. Values for
many have doubled or tripled what they were just two or three years ago.
This last year and a half has seen some spectacular gains. Is the "muscle
bubble" ready to burst, or are these values here to stay?
On the upside, the wild speculation of the eighties is not nearly so wild today. The speculation is there, but it is more measured and more calculated. It's not the wild abandon of the eighties. For one thing, a higher percentage of people in the market are in it for the right reasons -- enjoyment. Simple demographics are another factor that suggests future stability. The baby boomers are in their forties and fifties now, and a good percentage of them have lots of money to spend. As a group, they have more disposable income, by far, than any previous generation. It's one of the big reasons why we're seeing such a run up in muscle car prices right now -- these cars bring them back to their youth, and to many, that's priceless. They don't even care about the investment aspect of the purchase.
But all is not rosy. The economy is uncertain and there's a general sense that it may stay this way for a while. And for many middle and lower middle income families, the future looks downright scary. It's tough to ignore or discount the fact that we are losing stable, well-paying middle class jobs. If they lose that extra purchasing power to buy that GTO or Mustang, you'll see values fall. We don't believe that there are enough wealthier consumers to make up the difference, and they tend to be interested in more exclusive cars, anyway.
There is a wild card in this equation. Debt. It's the proverbial 600lb. gorilla. Increasingly, collector cars are bought on credit-- mostly from credit cards and home equity lines. There was little of this in the past -- you saved up your play money and then went out and bought your toy. Credit drives everything these days.
For the last several years, a rising real estate market (which virtually all the U.S. has enjoyed) and low interest rates have made it more attractive for people to borrow off their home’s equity. For one thing, there's more of it. And because of the strong gains they've seen year after year, their PERCEIVED wealth is high, a perception that makes that $30,000 muscle car seem manageable. Which, incidentally, they expect to rise in value, too. With the recent leveling off in home values, undoubtably that perception will diminish, and a at least a portion of collector car spending will slow, too.
Theory of Relative Worth
Here we examine two data sets involving the 1967 Shelby GT500 and the 1955-57 Mercedes-Benz 300SL Gullwing. The Gullwing is an iconic collector car, and was one of the darlings of the eighties market, hitting the $1/2 million dollar mark at the peak. It dropped by half by the mid-nineties and has since been stuck there, though recent activity suggests a tick upward. The Shelby is iconic in its own right, and is one of the current market darlings. Although they go about it in different ways, both are high-value vintage performance cars that attract people by their performance, looks, aura, and exclusivity.
The second graph illustrates the relationship of value over time to the original purchase price. This time we compared market values for each at a particular point in time against their original price when new. At 15, 20 and 25yrs old, the cars were fairly consistent in how they related to their original purchase price. At 30 years, the Gullwing began to pull away, and at 35 years old the Gullwing went through the roof. Once through that, it settled at the 40 year mark (which was 1995 for the Gullwing) at exactly the same place the Shelby is today. Of course, the Shelby is actually 39 years old, but we've taken the liberty to call it 40. On it's 39th year, the Gullwing was entering it's final year of strong appreciation -- in two years values were plummeting.