How to Invest in Autos

There are an estimated 25 million people in the classic car market.

There are an estimated 25 million people in the classic car market.

According to Investor Guide, new cars lose half their value the moment you drive them off the lot and continue to depreciate by 20 percent every year until they hit bottom in about 10 to 15 years. So, the return on investment, ROI, is dismal to say the least. Cars purchased for investment are almost always classic cars, but David Schultz, a board member at the Classic Car Club of America, says about buying cars as an investment, “If you make a profit, it’s a miracle." So why do people invest in cars? For the love of the car.

How to Begin

Like investing in art, coins or stamps, investing in cars is generally the domain of the collector. The best way to begin is to join a collector’s club, a “fraternity of enthusiasts” where experts help novices get started. Some clubs, like the Antique Auto Club of America, include all types of cars. Others focus on a certain type of cars, like the so-called “muscle cars” that include high-performance Dodge Chargers and Pontiac GTOs from the 60s and 70s. Still others are make-specific, like the Corvette Club of America. In the words of Jay Leno, “If you buy a car and it goes down in value, at least you have something you like.”

Buyer Beware

Investing in cars is always a buyer-beware situation whether you go through a dealer, an auction, trade magazine or online. Never buy a car sight unseen. It is also highly advisable to take an expert with you to inspect the car. A crucial factor in a car’s value is whether it is in its original condition. Cars that have not been accurately restored to the original specifications with original parts are called “Frankensteins” and are not investment quality.

Value Drivers

There are five factors that drive the investment value of cars: original selling price, design, engineering, demand and original condition. While no one factor should necessarily outweigh another, original condition is key in every case. For instance, a car may be rare, but that doesn’t necessarily mean that there is a high demand for it. However, according to Ron Christenson, who has been auctioning cars for 30 years at MidAmerica Auctions in Minnesota, a car in original condition will always be worth double or even triple the amount of its inauthentic counterpart.

Maintaining Your Investment

Cars are like real estate in that they both require significant maintenance costs to retain their value. Like wine that investors buy without intending to drink, cars purchased for investment are not bought to be driven -- or driven very little -- as it will depreciate their value. Taking a car to a car show means transporting it on a truck, not to mention storage costs that can be in the thousands per year. Then there’s insurance and mechanical maintenance that must be performed by a specialist. These costs can erode any appreciation, which typically is only about 5 percent per year to begin with.

The Market

The most expensive car ever sold is a 1936 Bugatti Type 57SC. It sold at a private auction to an undisclosed buyer in 2010 for somewhere between £20 million and £26 million, or $31.75 to $41.28 million. The majority of investment-quality cars are priced between $15,000 to $50,000. For most people who purchase cars for investment, the love of the car is their primary ROI.

 

About the Author

Lisa Dorward was a corporate financial executive and business consultant for more than 15 years before becoming a writer in 2003. She has B.A. degrees in both history and creative writing and earned her M.F.A. in creative writing in 2008, specializing in novel-length historical fiction.

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