Nicholas Riemer
JOHANNESBURG - For most investors, traditional asset classes like equities, bonds and cash will make up the bulk of their portfolios. However, for the adventurous, there lie many other non-listed investment options that offer both potential yields as well as enjoyment. These other asset classes are collectively known as alternative investments or alternatives for short. Alternatives behave differently to traditional asset classes and act as a useful diversification tool, which could lower overall portfolio risk. There is a wide variety of alternative assets available to investors, however, investing in classic cars is a personal favourite.
What is a classic car?
There are many different opinions around when a car becomes a classic. Some base it purely on the vehicle's age while other motoring groups consider age with other factors like make, mileage and engine size before classifying accordingly. The one thing all motoring groups agree on, however, is that a classic car needs to be old. For most motoring enthusiasts, true classic cars must have stood the test of time. There are various motoring groups that differ on the age where a vehicle becomes classic, and these time periods range from 20 to 30 years, however, I have always applied the 30-year rule to when an investment car becomes classic and when it has the possibility of really appreciating in value.
Why invest in classic cars?
For most investors, the two main reasons for investing in classic cars are 1) the potential for capital appreciation and 2) the enjoyment factor. When buying company shares, they are left to earn dividends and grow value in a share portfolio, where classic cars are physical assets which can be worked on in garages and taken for weekend drives. Investing in classic cars is about the journey in finding the right vehicle and then maintaining and enjoying that investment.
Lockdown gave many a new perspective on investing and for me the one lesson was how important the enjoyment factor is around investing and that new types of assets must continuously be explored to further our knowledge as well as passion.
Lockdown presented me with an opportunity to research the classic car market and try and identify a vehicle that would suit my strategy and goals from an investment perspective. I have always enjoyed the classic Mercedes Benz’s. The SL models have done exceptionally well in terms of appreciating in value. In 2018 a 1963 300SL roadster sold at just over $5 Million, while 1970 Mercedes Benz models have already appreciated drastically in price. My strategy was to try and find a Mercedes that had only just entered the classic status of 30 years, with that rare factor of limited models available in South Africa.
The investment Journey to finding that right vehicle:
While classic cars are an enjoyable investment, like any other investment, knowledge and understanding of the asset class is essential in being successful. Not all classic cars are a sound investment. The incorrect decision could leave you with a repair and maintenance bill exceeding the purchase price of the vehicle.
These were some of the metrics I was on the lookout for in my search of the right classic car:
Make and model: The make and model of the classic car on your radar will allow you to research how older models have performed in terms of appreciation as well as the investment sentiment across the world. Investment education is at the click of a button in terms of Google searches and identifying what other motoring groups are saying about your potential vehicle will further your understanding of your potential choice as well as assist you in getting a feel for the current market demand and supply.
The price: Like any investment, price plays a big role. When investing in a classic you must always keep in mind that work may well be needed, and items repaired increasing the cost of the investment. Tracking global sales prices will allow you to have all your ducks in a row before making an offer. Overpaying for a classic will mean reducing potential profits down the road.
Capital appreciation: Another important aspect is whether that car increased in value since being built. I like to see an initial increase in capital value, as it means that there is already demand globally and that this demand should increase as the vehicle gets older.
Condition: The condition of the car is crucial in making returns later when selling the vehicle. A major addition to value is original paint and leatherwork. Cars that have been repainted and reupholstered lose value, as the pure classic collector is looking for original condition.
Service history: Having a full-service history as well as an audit trail on what has been done to the vehicle is part of the due diligence that must be done before purchasing that asset. Classic with full, franchised service histories will fetch greater potential returns in the future.
Mileage: In general, the lower the mileage the more valuable the car, however, I also like to know that the car has not been sitting in a warehouse for 30 years, as that could mean parts malfunctioning in future due to the car just sitting. There needs to be balanced between low mileage as well as the car running from time to time.
Understanding of the current market: Over the pandemic live auction houses were postponed, bringing some ambiguity to the classic car market and the real effect of the pandemic on it. Autotrader UK has reported a 30% drop-in activity through their websites compared to this time last year, however, listed retailers have not decreased prices yet. Classic car collectors must be aware that fair value prices around the world might be difficult to obtain due to auctions being closed and researching price history as well as performing personal projection on potential returns, must be done before settling on a price.
Maintenance and repairs: These classic cars are old. One thing I placed emphasis on was finding a mechanic that specialised in the vehicle make and model before making an offer. These cars are old and from time to time something will need to get fixed. Knowing a mechanic who specialises in the vehicle could save you huge amounts of time and money going forward.
Trickle charger: Lastly invest in a trickle charger. As a classic car is not an everyday car, the battery will run down. A trickle charger allows the battery to be maintained, ensuring the life of the battery as well as the car turning over for the weekend cruise.
The investment journey led me to:
The Mercedes Benz 560 SEC.
My classic car investment journey led me to this incredible car: A 1990 560 SEC. The reason behind this choice relates to the points mentioned above. Global attention on the vehicle has already seen large increases in price in the UK as well as how well earlier models have performed. I was fortunate to know a mechanic that specialises in the 560 SEC meaning any issues going forward should have a solution. The V8 coupe was also built unbelievably well and was driven by presidents and wealthy businessmen all over the world. Through research and persistence, I was also able to find a model with all original paint and leatherwork as well as a full-service history and low mileage. This recent acquisition for me has brought out a new element of enjoyment in my investment journey with many weekend drives to come. Capital appreciation on this vehicle will come second to the amount of enjoyment this road has given me.
*Nicholas Riemer is Education Head at FNB Wealth and Investments