Tourism, Cars, Traffic

Wednesday, 22 May 2019 08:53

A brief Economic Analysis of the current South African Classic Car Market

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A brief Economic Analysis of the current South African Classic Car Market by Gavin Green

Decades ago Gary Player was frequently heard on the radio doing a voice-over for a bank advertisement extolling the virtues of: "... Cash, Equity and Property: the three pillars of investment strength." This was in the heady days of the Ford Cortina, the Granada and the Capri. Remember those days? Cars have changed, and so has investment.

That old advert encouraged us to balance our investments with 30% of our investment wealth in each of the three pillars (which of course the bank in question would do for us…) The question which then arose was what to do with the remaining ten percent of our investment portfolio? The economic wisdom of the seventies and eighties (remember Reganomics and Thatcherism?) was that we should invest the remaining ten percent of our wealth in “tangibles”, a category which covered art, Persian carpets and other tangible collectables. A gentleman in those days was expected to have some expert knowledge of his field of collectables.

So we learned the difference between Turkish and Persian, Abstract and Impressionist, and could tell a marble bust from a bronze. And some of us weren’t gentlemen, we were “petrol heads” and had the odd Alvis, Rolls, Rover or Gordini stored away. The Americans changed all that by printing dollars by the quadrillion and reducing interest rates to close to zero. This made borrowing great swathes of cash at virtually no interest very easy, and commonplace. It also made a mockery of investing a third of your wealth in cash as there was no real return. So Mr. Player’s wealth investment model of the 80s was changed into a zero cash model in the new millennium, as holding cash was costing you in fees and inflation.

The 30% cash holding now went into tangibles, which rose greatly in relative value, leaving the smart investor with 40% in tangibles. And they did very well. The rise in such investments was expressed by the sad comment of a friend when he saw a Porsche he had previously owned: “I sold that for R400k and now its worth over R5m” Tangible Investments have grown exceptionally well. A decade ago South African paintings first broke the R1m barrier and now, when they sell for ten times that figure, nobody bats an eyelid. So all your old cars are growing in value, because tangible assets are now a valid and growing asset class. Investors with too much cash and too little knowledge will drive up a particular sub-group into an overheated position and create a bubble which must burst. The Porsche bubble of a few years ago is one example, but the market recovered remarkably well with some price corrections and then steamed ahead regardless.

The international Classic Car market does have a large contingent of investors who are only in it for the money, the growth and the returns, and this new angle of investment, for growth rather than passion, has had an impact: the more popular brands have risen dramatically in value. Classic Porsche and Ferrari are the two most common examples: it’s easy for someone who has no knowledge of cars to buy and brag about a commonly known name. And this will self-correct, as markets do from time to time. There have been little bubbles along the way, little Porsche and little Ferrari bubbles where overheating has occurred and corrections have quickly followed. Sometimes these corrections cause a slow-down (called a tempering) which may endure for a year or two, but the real value will soon return.

International markets are affected by politics, just as we have at home. Brexit, Donald Trump and the Russians, and a long list of issues all temper markets of wealth investment. Locally we’ve had State capture which has caused most of us to withdraw behind our two meter walls and electric fences, pretending there is no-one beyond the barriers. And so now we feel there may be a ray of hope after the elections, if all goes well. And then we want to be able to find out what our tangible assets are worth. But how do we do this, who do we ask? The governments of the world have established formal and regulated bodies to deal with the investment of your wealth and protect you from unscrupulous confidence tricksters and scam artists.

The Estate Agents board trains and examines and regulates the Estate Agents who facilitate the purchase and sale of your properties. That’s 30% of your wealth covered. The Financial Services Board (FSB) covers the 30% of your wealth which you invested in the equities market. But who covers the 40% of your wealth which you have invested in tangibles? Unfortunately you are on your own in this field. So please tread carefully. Who really knows the value of your car, or bike or Erma Stern painting? Who can value your rare and ancient carpet, or the Cape Colonial cabinet? Who can tell a Rob Leggat bronze from a Rob Holt, a Robert Glen or a Robert Deurloo?

There are reputable people who have spent a lifetime amassing a huge and intimate knowledge of each specialist field. And then there are the chancers, the bullshitters, the fly-by-nights and the con artists. The Classic Car market has experienced a period of turmoil in the last two to three years, much like the rest of South Africa. Uncertainty and indecision, suspicion and doubt have affected all aspects of life in South Africa. We have had our fair share of nay-sayers painting pictures of doom and gloom locally. The simple reality of your tangible investments is that they are mobile and can be sold anywhere in the world. Just remember that tourists commonly buy life-size elephant, giraffe and rhino sculptures on the side of the road and transport them to wherever home is. The economic principle of arbitrage is valid in the tangible investment world: Arbitrage is the process of buying cheap in one market and selling expensive somewhere else. The Classic Car market has for decades been closely aligned with international prices for this very reason.

A decade ago classic motorcycle prices in South Africa fell out of step with world prices. The result was a mass exodus from our shores of countless classic Matchless, Vincent, BSA, and many other, especially British, bikes. These will never return, leaving us poorer for the experience. It’s not just classic enthusiasts in South Africa who have lost out. Those who sold their bikes, their historic wealth investments, were seriously underpaid for their wealth, and the unscrupulous opportunists who, on-mass, exported hundreds of Classic Bikes made a financial killing. How did they achieve this? By convincing owners that there was no market for their invested wealth, that the market was dead, that prices were too high and so on. In short, these opportunists spread false information for their own gain. Who do you go to for advice on the true value of your wealth? It would be ideal if there existed an FSB for tangible wealth investments. How much is your Ferrari 250 GTO worth? That’s pretty easy, because all the auction houses around the world would love to beat the current record of $48m. Less easy is the value of your old Mercedes or local racing legend.

Or whatever your beauty is: who is best to advise you? If they don’t know the international value, don’t believe anything else they say. Say goodbye instead. If they can’t tell you the history of the pricing of your car, throw them out of your garage. Say no more to them. If they have no knowledge of the existing number of units of your car still extant in the world, why are you bothering with them? These days it’s so easy to create an electronic facade on the internet or on social media: any idiot can have a fancy website. Any poorly trained or inexpert salesman will talk down the value of your Classic Car: it makes it so much easier for them to sell. Here’s a simple test: have a friend phone your potential Classic Car dealer and pose as a buyer to enquire about the price of a car like yours. After a suitable interval, phone the same dealer and enquire as to the sales value of your car. An honest dealer should give you similar prices on both occasions.

Anyone else will show a wild disparity. The key question you should always ask is: “Who should benefit from the growth in wealth of your investment: yourself or the car dealer?” And when you’ve found the right broker remember the other brokers in your life and what they have both cost you and earned for you over the long term. It’s time to start looking closely at the Classic Car market in South Africa and separating the ‘chancers’ from those who should rightly be called ‘Investment Brokers’. A serious problem in the current market is that there is little movement: very few car are being traded, and dealers (or brokers) only earn commission when assets are sold and bought. So they talk prices down in order to create some movement: any movement, any sale is better than no sale. A good broker would instead be talking up the value of your assets in order to achieve a better price for you, the investor.

Who is your Classic Car dealer of choice? Who knows the true value of your asset? Who can connect you with the appropriate buyer or seller? Who can realize appropriate value for your tangible investment? Wealth must be realizable, it must be convertible, traceable and a store of value. The sad reality is that the South African Classic Car market is under siege by ‘dealers’ who are talking values down, and the result may soon be a mass exodus of our beautiful Classic Car pool, similar to the Classic Bike exodus.

There is one Classic Car broker who rails against this trend, one broker who values your asset at its international price, and provides an open, honest, consistent and justifiable appraisal of the worth of your asset. With over 34 years of experience in the motor industry coupled with a vast knowledge of the Classic and collectible segment, Gavin Green is considered by many to be one of the leading authorities when it comes to the buying selling and valuing of your investment. Should you require a realistic International market value please feel free to contact Green Auto Sport (www.greenautosport.co.za) in this regard.

Published in Tourism, Cars, Traffic

Green Auto Sport

Looking for that everyday Classic or rare Collectible? We encourage you to reach out to GREEN AUTO SPORT. With over 30 years experience, we have become a market leader in dealing with European (Mercedes, Jaguar, Porsche), as well as Japanese (Nissan, Datsun and Toyota) classic and collectible cars. We have an extensive customer base from where we acquire some of the finest vehicles in South Africa, previously sold by us, now on offer.

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