Can a Car be an Investment?

by Adam on November 25, 2013

Wealthy entrepreneurs and rock stars often amass large collections of cars which are the envy of ordinary car lovers. Usually the collections come about due to the collector’s enthusiasm and the obvious status conveyed by an expensive vehicle, but is it possible for cars to be an investment for an owner?

Traditionally cars are not seen as investment assets due to the fact that they depreciate, and so some consider them to be money pits like yachts.

Cars come with a host of other expenses, from fuel and important breakdown cover – for which I personally recommend the AA (http://www.theaa.com/breakdown-cover/) – to mandatory car insurance to protect you from the cost of accidents on the road.”

However car prices have been fluctuating and some believe that there are ways in which both classic and modern cars can be a good use of your cash.

For investment purposes, cars will always be inherently unreliable.

They have a one off value, in that they don’t pay shares or dividends like a business investment, and this one off return will be at the mercy of market factors. So if they are to be viewed as an investment it should be in the same category as art or wine, and included in a wider portfolio for diversification purposes.
For classic cars, the HAGI Index tracks the sales of 50 collectable models and can give guidance on investment opportunities. However predicting sales values of classic cars is by no means an exact science. Factors such as the quality of restoration, previous ownership (for example if it was owned by a famous person) and also just fashion and taste can make prices vary wildly between similar models. For example, as older generations who drove and fell in love with a particular make or model pass away, that model can become less valuable.

 

Limited edition cars or sole surviving models can obviously be more collectible and prized than others.

What should be remembered about the classic car trade market though is that it is a world of car lovers, who buy items for their nostalgic value or their beauty. Luckily, in times of economic trouble nostalgia generally becomes big business, so selling a classic car can be a way to make money during a recession.

Additionally, investment markets for assets such as wine have enjoyed something of a boom in China. If the classic car market receives the same interest then collectors could find themselves with some valuable assets to sell.

The most important thing to remember though is that the classic car market is unpredictable and fashion plays a large part in dictating cost.

Most collectors and traders recommend you embark on buying classics out of love and a genuine interest in the vehicles, and then financial gains will be an additional benefit. So if you have always had an interest in classic cars speak to some dealers, check out the HAGI Index and remember that quality is better than quantity. Going to auctions and fairs will help you get an idea of what’s selling and what the prices are like, as well as the type and quality of profitable cars.
When it comes to modern cars conventional wisdom suggests that you will always sell the vehicle for less than you paid for it. In years gone by this would pretty much always be true, but due to price and demand increases and inflation some people are now asking near enough what they paid when selling on their car, and in some cases more.

In particular, cars with good mpg have enjoyed a boom, so the Toyota Prius, Ford Focus and Honda Civics of the world have been in demand and sellers have been able to get strong prices.

Buying a car purely for profit like this is almost certainly a fruitless strategy – however if you want to think about the long term prospects of a vehicle then looking at such trends could increase the likelihood of making a good return.

Another good strategy for optimising the sales price of a vehicle is to buy it after it has depreciated significantly in price (known as the “sweet spot”) and then sell it on before it needs maintenance. This takes a certain amount of research and knowledge, and the ability to negotiate prices, but if you know your cars it is the best way to get a good deal and maximise your return on a vehicle.

 

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