26/01/2024
Featured Article, Insurance
The best word to describe the current state of the UK classic car market is turbulent.
In this article, we’ll explore exactly that; the history of the market, factors that influence classic car values, the state of the current market and how to navigate it.
In addition to knowing the classic car market well, we’re also experts in providing classic car insurance that is tailored to the needs of classic car owners around the UK.
What is an asset bubble?
An asset bubble refers to a situation in a financial market where the prices of assets become significantly inflated beyond their intrinsic value.
This typically occurs due to a surge in an asset’s price driven by exuberant market behaviour, where investors continuously buy assets in anticipation of further price increases, rather than appreciating an asset’s true economic value.
For collectors, well-chosen classics can offer portfolio diversification and a hedge against inflation making it lucrative for them.
Is the classic car market fine, has the bubble burst, or is it starting to? Let’s take a look.
A brief history of the classic car market in the UK
Classic cars have historically been a popular investment for collectors and motoring enthusiasts for many years, and in some cases, their value has increased significantly in the UK.
The world of classic cars has always been fascinating. Back in the 1970s and 1980s, classic cars became lucrative assets for investors, as the prices of vintage and classic cars were surging thanks to speculative buying.
By the early 1990s, the classic car market reached its peak. Prices were at an all-time high, with some iconic models fetching astronomical sums at auctions and private sales.
Like all good things, this didn’t last forever. The early 1990s saw a global economic recession which impacted various investment markets, including classic cars. The recession led to a decrease in disposable income and a more cautious approach to investments.
This is when the market crashed significantly – it came swiftly and severely catching many investors off guard. The bubble had burst and people were selling their vehicles at levels far below their peak values resulting in substantial losses.
Following the crash, the classic car market stabilised. Prices bottomed out, and the market began to recover slowly. Speculative investors largely exited the market, leaving more genuine enthusiasts.
The 2000s saw technological advancements such as online auctions and forums which made it easier for collectors worldwide to discuss and buy classic cars, helping to grow the market. The market witnessed diversification with a broader range of cars becoming collectible too.
In the 2010s, high-profile and record-breaking auction sales attracted significant media attention, indicating a robust market and drawing new enthusiasts. Modern classics gained, and are continuing to gain, popularity from a younger demographic entering the market too. Will history ever repeat itself?
The varied trends in UK classic vehicle valuations
The classic car market is showing a contrast in supercar values. While some prestige, high-end models are seeing a decline in values and selling below market value, others are achieving record-breaking sales.
One notable trend is the rising value of cars with a strong or unique historical narrative. Vehicles with a rich history or limited production runs are fetching premium prices, as collectors seek to own a piece of automotive history.
For example, multiple record-breaking sales have been made over recent years:
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2018: 1963 Ferrari 250 GTO
This vehicle was purchased for £52 million by an American businessman known for being a collector of Ferrari’s in 2018.
2022: 1955 Mercedes-Benz 300 SLR Coupe
The ultra-rare Coupe sold for a world-record £114 million in 2022 – just one of two in existence.
2023: 1962 Ferrari 330 LM / 250 GTO
It’s the only 1962 GTO raced by Scuderia Ferrari, all other examples of 250 GTO were sold to privateers. Purchased for over £40 million in 2023.
It’s evident that owning a rare, prestige vehicle is a prized possession to some enthusiasts. Take Queen Elizabeth II’s former 2004 Range Rover for example which was recently purchased for £132,750 at an auction despite likely being worth a mere £5,000 without the Royal connection.
In contrast to these eye watering figures, other segments of the classic car market are experiencing a downturn. Models that were once highly sought-after are now facing a decline in demand, leading to sales below their expected market values.
For example, Hemmings Auctions reports that the average sale price of collector cars at both live and online auctions decreased by 17% in October 2023 compared to October 2022, with some market-correct vehicles remaining unsold.
These examples highlight the current volatile nature of the classic car market. While certain models continue to fetch astronomical sums due to their rarity and historical significance, others are declining in value.
Trends that have impacted the classic car market
We have identified two recent trends that we are seeing which are impacting the classic car collector market:
ULEZ & the London market
The Ultra Low Emissions Zone (ULEZ) in London has significantly influenced the classic car market, and you can probably imagine why this may be.
As non-ULEZ compliant vehicles must now pay a £12.50 charge daily to drive within the extended zone, it represents a financial burden for classic car enthusiasts with vehicles built less than 40 years ago (which don’t fall into the historical vehicle tax category). The expansion of ULEZ is not just a financial pinch; it’s reshaping ownership dynamics within the classic car community.
Interestingly, the expansion of ULEZ has triggered a nuanced shift in classic car ownership. Vehicles with a historic tax status or some petrol ‘modern classics’ post-2006 are exempt, and drivers are looking to exploit this loophole.
You’d imagine that the values of these ULEZ-compliant vehicles would increase in line with demand too, whereas non-compliant vehicles may see a decline in London with owners looking to move them on quickly. Time will tell!
Younger collectors, the impact of COVID-19 and online auctions
The classic car industry was one of the few sectors that saw a boom during the pandemic.
There was a notable upshift in classic and specialist car sales. This boom was partly driven by a combination of factors including increased disposable income due to lockdown savings and the rise of online auctions.
The increase in disposable income came due to reduced spending on activities such as travelling. This shift in spending habits led to an immediate surge in interests such as classic cars.
Not just the same demographic though. There was a growing trend of younger collectors, shifting the average age of classic car owners from 58 to 54 years old. While a small difference, it shows that younger people are investing in classic and specialist cars.
‘And how did people purchase these classic cars in this time?’ we hear you ask, and it was through online auctions. With physical restrictions in place, these platforms offered a convenient and accessible way for enthusiasts to pursue their passion. Take Bonhams Auctions for example. They achieved record sales and increased their turnover by 27% from 2021 to 2022, indicating a growing interest in classic car auctions.
It’s not uncommon for new enthusiasts to sell their vehicles after the initial excitement cools, however the market generally remains robust and shifting ownership patterns is typical in niche markets such as classic cars.
Navigating the classic car market
Navigating the classic car market can be complex, especially when trying to predict future trends.
The classic car market remains an area of interest for investors. The market continues to grow with an emphasis on both investment potential and the joy of ownership. It’s even become more inclusive with a wider variety of vehicles and price points, catering to a broader range of collectors.
When investing in classics, research and patience are key for long term investments. Speculators after quick profits often risk losses, so we advise doing your homework before purchasing a classic for purely investment purposes. Don’t forget to get your vehicle the protection it needs too!
Not only that, but car owners can rest assured that their vehicle is accurately valued with Heritage’s Free Agreed Value service.
Summary
Whatever obstacles face the classic car market over the coming years, it’s clear that the industry is adaptable which is an encouraging sign for the future.
1990s market recession? The market stabilised and recovered. Covid-19? It attracted younger collectors. ULEZ? Some people are looking at (modern) classics as alternatives.
The contrast in prestige car valuations is interesting too – and one we’ll be keeping an eye on.
It’s difficult to judge whether we are or will experience an asset bubble, but one thing is for sure: classic cars will need the right level of protection including agreeing the value of it too. And who better to insure with than Heritage Insurance?
