Classic cars can be fun but caution called for
TORONTO - It might be tremendously satisfying to pick just the right stock or beat the composite index, but investing is not usually on most people's list of fun things to do.
If a confirmation "buy" email from your online broker doesn't send shivers down your spine, you might consider something with -- literally -- a little more emotional horsepower: investing in classic cars.
"Unlike pork bellies, this is an investment you can have fun with," says David Grainger, proprietor of The Guild of Automotive Restorers in Bradford, Ont.
While a bit more exciting than mutual funds, classic car investing is full of more potential potholes than a road after spring thaw.
"You have to do it smart (and) never count on something appreciating," cautions Grainger.
Not only should you not count on the car of your dreams making money, you should be aware that classic auto values can be subject to the same stomach-churning volatility of the stock markets.
Maurice Bramhall of Bramhall Classic Autos in Toronto has been around long enough to have experienced a few severe downturns, including the early days of the 1990 recession.
"As of the first of January, 1990, things started to slide very badly," he remembers.
"So if on Dec. 31, 1989, you owned a million-dollar Ferrari, within a few months it wasn't even worth half a million."
The good news is this downturn seems different.
"The quality vehicles -- in other words the vehicles that are unmolested, originally documented and fit into this demographic -- have done quite well," says Bramhall.
"Not upwards, but not downwards. They seem to have held their own. On the other hand, the ones that are heavily affected by demographics such as pre-war cars, unless they have the very biggest of names attached to them, are going nowhere."
Grainger calls the classic car business an age-driven industry in which, he says, you tend to get a glut at one end.
"All the old chaps who are in their 70s now can't drive their cars anymore, so there's a glut of four-door '20s and '30s sedans on the market (and) they're very inexpensive," he says.
"If you want to buy '20s and '30s cars, it has to have no roof and it has to be a really high end car. And now you're into the collectors market where that stuff just goes for tons of money -- it has to be the right car."
And this means paying serious money if you want to make serious returns: Grainger says you can buy a classic car for $20,000 and perhaps expect make $8,000 or $9,000 on it. But where serious money can be made is looking for the cars that are worth US$250,000 "but are on a fire sale for some reason for like $100,000."
"There's a collection out of Japan which we're handling for a friend of ours and these cars are very expensive -- but each one of them is between $50,000 and $100,000 less than its value once you get them over here and clean them up," he said.
He also points out that just because a car is rare, that doesn't translate into big returns.
"Perfect example is a Rochet-Schneider, incredible French car made before the First World War, called the Rolls Royce of Lyons at the time," he says.
"If this car was sitting in Europe, it would probably sell in moments. But because it's North American, no one knows what the hell it is, it sits around languishing at a fairly inexpensive price. So, a smart guy is going to come in, lay down US$35,000 for it, ship it to England and sell it for 40,000 pounds."
Even buying something more conventional can be dicey. Take for example the iconic Ford Mustang, a car Bramhall says crossed all barriers.
"Mustangs had a very large production number, but the thing is this also allowed a lot of people to own them. So if I'm 20 today, my uncle, my aunt, my grandfather, etc., could have had one and I loved it when I was a kid and I want to reproduce that feeling," he said.
But Grainger points out that you can still purchase a lemon even using expert advice.
He remembers the guy who paid $17,000 for a 1969 Mustang convertible that looked to be in mint shape and he paid an appraiser $180 to check the car out.
Trouble started when the car was shipped from B.C. to Ontario and it didn't handle very well.
"And it didn't handle very well because two guys tugging on the front wheel took it off the chassis along with its brake and control arms," said Grainger.
The buyer paid $25,000 to replace the entire bottom of the car "and when he talked to the guy who did the appraisal, he said `well, it was raining'."
"So that meant that the appraiser who was supposed to know his stuff didn't get down and look underneath the Mustang and the first place you look on a Mustang is underneath. And if you see tar guard or it's brown or anything, you leave it alone because they're famous for the whole bottoms rusting out of them. Mustangs, Camaros, Firebirds and Cougars -- the chassis were intended to last three or four years."
In sum, Grainger advises great caution and research.
"If you don't know what you're looking at don't even be tempted and especially never believe what the seller is telling you -- unless he's telling you it's a piece of crap," he adds.
And once you take the plunge, drive it.
"You can take it to shows -- in fact, you're going to do better if you take the car to a concourse event or show," he says, adding that a photograph will not often suffice to sell a classic car.
"What people do is walk up to a car at a show and go, 'Oh, man, I love this -- is it for sale?' As a matter of fact, it could be."