Cropredy Bridge Newsletter – Feb 2016

With 2016 gaining momentum and cars beginning to emerge from customer’s garages after a bleak and heavily salted winter, things are ramping up here at Cropredy Bridge.

Car sales
Car sales are seeing a big upturn with many Interceptors changing hands before we have the chance to list them on our website. As a side note, it’s always worth a phone call to us if you’re looking for a particular car as they come and go with increasing pace. With the rise in values, we’re also glad to see that the Interceptor still maintains its wide and classless appeal. A machine which is always guaranteed to elicit a great reaction, interest in this car has great momentum.

Workshop and restorations
This time of year traditionally sees owners of classic cars put them to the top of the to do list in advance of lighter nights and warmer days. With this in mind we’re offering free post layup inspections to ensure that your classic car (be it Jensen or otherwise) is best prepared for whatever your year ahead holds. Be it a trip to the continent or a local car show, being stuck on the side of the road is never fun and as cars are made to be driven, being stood for extended periods of time means that everything from tyre pressures, oil levels and brakes to name but a few need to be thoroughly checked before use. Call us on: 01295 758 159 to book your classic in today.

The Cropredy Interceptor
Our ‘new’ Interceptor is in the early stages of build and we now have a finance company on board which allows us to offer flexible solutions to our customers at a very competitive rate. The absence of depreciation is a key factor in this as we are going to great lengths to ensure the originality and integrity of the cars.

The rise and rise of the classic car market
There are a great deal of people with a good number of theories on the recent meteoric rise in classic car prices. Taking some of those into account, here is our view on the rise and rise of classic car prices.

Black-Monday-the-Stock-Market-Crash-of-1987-NYT

‘Black Monday’ in October 1987

You may or may not remember the stock market crash in 1987 when the DOW imploded. Prior to this, money was in ready supply and Classic Cars appeared to be a good investment. Prices were rising, they were a tangible asset and they weren’t subject to Capital Gains tax (along with racehorses, watches and vintage wines).
All sounds good then? Well, not quite, with demand outstripping supply and prices rocketing, people had borrowed heavily to get in on the game and when the value of stocks fell in the late ‘80’s and interest rates peaked in the early ‘90’s, Johnny lender had to have his money back as it was too expensive to borrow any longer.
With this, everything went up for sale and the market was turned on its head. Supply outstripped demand and £750,000 Ferrari’s went down to £100,000 almost overnight.
With fingers burned and lessons learned, fast forward to the late noughties as the country is beginning to stagger back to its feet post-recession. With interest rates low to encourage borrowing and spending, the upshot was that Mr Jones’ life savings were no longer putting on much weight languishing in the bank – but we’ll come back to Mr Jones shortly.

They say that the five most dangerous words in finance are; “It’ll be different this time” – but looking at the situation with ruthless logic, it appears that it will. The key difference this time is that the market is being built on ‘owned’ cash and less on borrowed finance. This is to say that the people buying the cars this time around (while some are speculators) are using their savings or liquid assets to make the purchase and this is an important factor. With the removal of a third party lender and the influence of interest rates, the variable is reduced and the asset is at the behest of the owner and no-one else.

To paint the picture, in 1990 Mr Smith had to sell his Ferrari 275GTB/4 for a substantial loss because the interest rates rose and made the borrowed equity in the car too expensive to sustain the investment.
In 2015 if our old friend Mr Jones wants to sell his Aston Martin DB4 that he bought with his savings then he will do so. The key difference here though is that Mr Jones bought the car with ‘owned’ money so he is in no hurry to sell and will choose the right time depending on demand/supply/market value to sell. No third party – no rush. This way, the market can self-regulate.

ferrari-250-gto-breaks-world-car-auction-record-43

Ferrari 250GTO

Interest rates staying low is one factor in the market but another part of the meteoric surge is down to what we call the ‘table cloth’ theory.
Picture if you will a giant round table covered in a crisp white cloth. Every marque has its own table but for the purposes of illustration, we’ll use the Ferrari table. At the centre of the table is the most expensive Ferrari – a hallowed 250GTO which sold in 2014 for a shade under £23m. Slightly further out are the 250GT SWB’s then 275’s, 288’s, 330’s, 550’s, 308’s etc. This is to say that further out towards the edge of the table you get, the less valuable/desirable the cars are. However, as you lift the car in the centre, the table cloth effect means that all the other cars rise eventually. This is not to say that people only buy 308GTBs for reflected glory but it’s certainly a factor in values.

The super wealthy often buy centre table cars to add to private collections so to them, investment tends not be the overriding factor although lack of depreciation certainly helps. If you could afford a Picasso, you probably wouldn’t buy it because you need to make a few quid on it. At that level, classic cars appear to be the product of wealth and not the route to it.

As nothing is ever that simple there is a third factor which contributes; say it quietly but Capital Gains tax (or lack of) is also a large draw on these cars. A classic car is effectively a used car and a private individual won’t pay tax on any profit made at the time of sale as the UK Tax system classifies anything with a predictable lifespan of less than 50 years a ‘wasting’ asset. As prices rise many owners are now looking at profit margins which dwarf the original purchase price of the car. In 2004 a friend was offered a Ferrari 330GT for £39,000. He turned it down citing that it was overpriced. The same car sold in 2015 for just over £600,000. Hindsight is a wonderful thing and it does show the upward parabola of the market but we think that days of doubling your money on the big ticket Ferraris are over.

So what happens when interest rates go back up and people want to put their money back into the banks? Well, as we see it that would see the market slow a little but nothing anywhere near a crash. The odd borrowing investor may choose to sell up which will increase supply and therefore have a small effect on demand but not enough to instigate a full blown collapse.

In short, the market appears this time to be built on stone and not sand.[/vc_column_text][/vc_column][/vc_row]