The Classic Ferrari Market
The production of Ferrari cars started in 1947. Initially Ferrari built cars for racing, but in the following years road cars were also produced to finance the race activities. From the beginning Ferrari race and road cars were always fast, exclusive and relatively expensive.
The list price of a 1950 Ferrari 166 MM Touring Berlinetta was around $9.000, while many other ‘normal’ cars were priced between $1.000-$2.000. In the beginning of the ‘60s a 250 GT Berlinetta SWB costed around $12.500 and a in Y1964 a 250 GTO around $18.500 (US price). Large amounts of money for a car in those years.
In the ‘50s and ‘60s the Ferrari collector market didn’t exist yet, prices for second hand Ferrari cars were just like other second hand car prices. Pre-owned Ferraris kept their exclusivity and their relatively higher prices. Depending the condition of the car, a second hand Ferrari in good condition of 5-10 years old could be bought for 20%-50% of its original list price. This was until the early ‘70s when the market completely changed, and the Ferrari collector market started to develop.
Emergence of the Ferrari Collector Market
In the ‘60s and ‘70s the enthusiasm for older cars arose and a collector market for special and older race cars emerged. The Ferrari collector market started around Y1973.
Paradoxically, but perhaps also understandable, the collector market started to flourish at the same time as the first oil crisis in 1973.
This oil crisis caused a recession with high inflation, instable interest rates, low consumer and business confidence and stagflation. Spending money on tangible goods, such as automobiles was an understandable consequence, which also occurred in later crises.
The price development of one of the race icons, the 250 GTO, illustrates this. The price of a 250 GTO in good condition, which could be acquired for $10.000 in Y1972, increased to over $300.000 in Y1981. A 30-fold value increase in 10 years time.
Late ’80s Bubble and Early ’90s Crash
In the first half of the eighties, the world economy wasn’t very strong. Most countries were recovering from the ‘Early ‘80s Recession’. Nevertheless, classic car prices increased a few percent per year.
When the world economy got better in the second half of the eighties, a lot of wealth and millionaires were created. In the US the number of millionaires tripled between Y1980-1990 and more and more car enthusiasts started to buy ‘hobby’ cars or even started car collections.
This was enhanced after ‘Black Monday’ on 19 October 1987, when stock markets all over the world dropped dramatically (Dow Jones IA: -22,6%) and the stock market confidence was severely damaged. In classic cars and other collector cars, people saw an interesting alternative investment option.
In two other big car markets, the U.K. and Japan, tax regulations played another important role in the value increase trend. In both countries companies were allowed to buy cars, even classic and sports cars, as company cars and they could deduct high depreciations from their profits and realized tax advantages. A lot of collector cars were sold by companies and were even parked on top floors in office buildings.
Another reason for the value increase came from the land of the rising sun. To lower the Japanese debt, the Japanese National Bank appreciated the yen. Within three years time the yen appreciated almost 80% to the dollar and 40% to the English Pound. This made assets from Europe and the USA extremely cheap. At the same time the Japanese interest rate was lowered to stimulate Japanese consumption. This, together with the interesting ‘company car’ regulations, made it very interesting to invest in foreign assets.
Major Japanese investments were done in art (Y1990: Van Gogh painting record sale: $82,5 million), cars (November Y1989: Ferrari GTO s.n. 3909GT record sale: $13,8 million), real estate (Y1990: Pebble Beach Golf Course) and even companies (Y1990: MGM Studios was bought by Sony).
The result was an extra boost of the prices of cars. Auction houses sold classic cars for record prices and also the prices of new collector cars and contracts for cars with limited production numbers or long delivery times exploded.
Contracts for new F40’s, dealer price DM 444.000 (German Deutsche Mark), were offered in the German car magazine ‘Auto Motor und Sport’ for asking prices up to DM 2.200.000, 5 times the list price.
The sales numbers of new Ferraris were also boosted. The planned F40 production total of 400 cars was increased and eventually 1.311 F40’s were built. The factory said the production number was increased to end the speculations around the car, but many people think that extra revenues were the main motivation.
In this period many true car enthusiasts sold their cars to short term speculators and investors and many of these cars were financed with loans. British banks even advertised with loans for car investments and only a few people saw the danger of the increasing car market bubble.
When the Japanese economy came into a heavy recession at the end of Y1989, it caused the bubble to burst. Many cars came back on the market and the faith in the car market as an interesting investment opportunity disappeared. Speculators and investors left the playing field and sold their cars with huge losses.
The performance of the high volume model Dino 246 GT (2.487 cars built from Y1969-1974) is a clear example of the speculative bubble and subsequent collapse of the market. Although the Dino 246 GT with its V-6 engine was not the most popular model among Ferrari enthusiasts, prices increased significantly. It was merely caused by speculators who wanted to make quick money.
When the market collapsed, they were the first to sell and many cars were offered at the market for lower prices every month. In Y1989 the Dino 246 GT peaked at $275.000, three years later, the model had lost over 60% of its value and cars were sold for $100.000 again.
To illustrate the extremity of bubble and the crash in the late ’80s and early ’90s, the value development graphic of the 250 GTO shows it all. In December 1989 – almost at the top of the bubble – 250 GTO sn 3909GT was sold for $13,8 million to a Japanese car collector. In five years time a 30 fold value increase was a fact.
After another record sale of the Ferrari 330 GTO s.n. 4561SA in January 1990 for $17 million, the bubble finally burst and enormous price decreases were the result. In Y1994 – five years after the record sales price of $ 13,8 million for 250 GTO 3909 GT – the car had lost 80% of its value and was sold for $2,7 million to an English car broker. Y1994 can be considered as the bottom of the car market crash and the turning point in the market.
The hype and the burst also had great effect on the production of new Ferrari cars. First, production was boosted and many new cars, such as Enzo’s latest model: the F40, were ordered with waiting lists of years as aconsequence. Orders led to an all-time record production number of 4.487 Ferraris in 1991. In 1992 the total production of new cars decreased by -25%, when 3.384 cars left the factory and another -31% in 1993, when only 2.345 cars were produced. From 1994 the production numbers started to grow again with a few hundred cars per year to 3.946 cars in Y2000.
In Y1997–2000 a historic speculative bubble arose when many investments were made in the new ‘much-promising’ Internet companies. But the promises didn’t come out and in the spring of Y2000 this bubble came to a burst.
The stock market crashed and caused in a few years time a loss of $5 trillion in the market value of companies from March Y2000 to October 2002. Accounting scandals (Enron, WorldCom) and the 9/11 terrorist destruction of the World Trade Center’s Twin Towers accelerated the stock markets drop; the NYSE suspended trading for four sessions.
Effects on the Classic Ferrari Market
During Y1997-2000 many investors invested (loaned) money in the stock market and in dotcom-companies. The profits were tremendous and were reinvested again.
In these years investments in classic cars were relatively low. One of the reasons was that the return on investment in classic cars was much lower than investments in stocks and dotcom companies.
When the dotcom bubble burst, it didn’t lead to a major decrease of the average prices of the Models Y1947-1972 and Models Y1972-1989 (the newer models were not classics yet). On the contrary, the average prices of the Models Y1947-1972 still increased over the period of January Y2000 until January 2002 by 4,0%.
Models Y1972-1989 lost a little bit of their value in Y2000, which was made up in Y2001. Overall the Models Y1972-1989 had a value increase in these two years of 0,2%.
Financial Crisis Y2007-2008
The financial crisis, which started in Y2007, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It threatened the total collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide.
In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the Y2008–2012 global recession and contributing to the European sovereign-debt crisis.
Effects on the Classic Ferrari Market
In Y2005 and Y2006 the average values of the Models Y1947-1972 and the Enzo Late Models showed a substantial increase, the Models Y1947-1972 even increased by 10%-25% per year.
The crisis of Y2007-2008 had absolutely impact on the value development of classic Ferraris, but not the tremendous impact many people had thought.
The extreme double figure increases of the Models Y1947-1972 in Y2005 and Y2006 stopped, but until Y2008 the values still kept on going up a little. In Y2009 the average value increase of the Models Y1947-1972 was still 2,3%. The Enzo Late Models showed a small decrease in Y2009 and Y2010, but from Y2011 the Enzo Late Models also showed an exponential value increase again.
‘Crazy Years’ Y2012-2015
During the financial crisis many people had lost faith in the financial system and the traditional investment markets. Many people feared long-term financial consequences such as decreasing stock- and real estate prices, extreme low interest rates and high inflation.
This led to a reconsideration of investment strategies and to asset allocation toward alternative investment opportunities in tangible goods, such as: gold, art, wine and classic cars.
As a result of this, the prices of classic cars in general and classic Ferrari’s in particular went up, which attracted new buyers, traders and speculators to the market. This resulted in a true car market hype with an upward spiral with exponential increasing values.
In the ‘Crazy Years’ Y2012-2015 the market of classic Ferrari’s was a complete madness with double figure value increases of the market cap of the models until Y1989.
In Y2012-2015 the market cap increased in Y2012 by 15,0%, in Y2013 by 22,5%, in Y2014 by 31,3% and in Y2015 by 19,0%.At the end of Y2015 the doubts in the market about the ongoing price increases became stronger resulting in a slowdown of sales and subsequently a slowdown of price increases.
No Market Crash
After the ‘Crazy Years’ Y2012-2015 with extreme price increases, some people believed that in Y2015 the market of classic Ferraris had become a bubble, which would eventually end like the collector car market crash in late eighties.
Obviously, there were similarities, but more important there were clear differences – which in our opinion and published in our reports Y2016 and Y2017 – made it unlikely that the market would develop like in Y1989-1992.
Similar to the development in the late eighties were the extreme and exponential value increases in only a few years’ time. As well in the late ‘80s as in recent years many true Ferrari enthusiasts sold their loved cars and many of these cars came into the hands of traders and speculators. Matchmakers advertised with cars they didn’t even own and the media and auction houses published sales record after sales record.
But the differences were more important. In the late eighties many economies were growing, and loans were easy to get. Many investments in classic cars were made with loaned money and with high interest rates. UK Banks even advertised with loans to buy (classic) cars with extreme high interest rates.
When the recession started and the prices of classic cars dropped, many speculators had to sell their cars in order to pay the rent and to repay their debts. The market wasn’t very transparent, and buyers were difficult to find. Owners feared a further decrease; so many cars were sold as quickly as possible for extreme low prices. Also, many cars came into the hands of banks, which had no patience and also sold the cars for low prices. This caused a downward spiral and an ongoing decrease of prices until Y1993 when the prices stabilized.
The strong value increase in Y2012-2015 has other backgrounds. Many Ferrari experts and investment analysts are convinced that the value increase was a direct effect of the financial crisis in Y2007-2008. After the financial crash, the confidence in the financial system was gone and the future of the traditional financial markets was very insecure.
In some economies there was also the danger of high inflation. As a result, much investment money moved from stocks and bonds to tangible goods, such as gold and luxury investments such as classic cars.
An important difference with Y1989 was that global wealth was enormous and many cars were bought by the ‘new rich’ and by collectors with their own money. This would make it less likely, that in case of an economic recession, owners/ investors were forced to sell their cars in order to repay their debts. For the cars that were financed with loans, the interest pressure was much lower than in the early ‘90s. When price stabilization or price decreases would happen, the urgency to sell in short term was less high.
Another big difference was the transparency of the market, which was absent in the late ‘80s, early ‘90s. In Y2016, if in one region recession would have broken out and people had to sell their cars, people in other parts of the world would see the cars for sale on the Internet. If prices were lower than in their own region, cars could easily be sold to those regions.
Regarding the confidence in the classic Ferrari market during a stock market crisis, the Dotcom Crash (Y2000-2002) and the Financial Crisis (Y2007-2008) had shown that the value of classic Ferraris is not correlated with decreasing stock markets.
With hindsight, the crash never came but it was obvious that the prices of some cars had increased too much and in some cases to unnatural high levels.
The ‘Crazy Years’ were followed by a cooling period of the market in Y2016-2018 with slower price increases, price stabilizations and price corrections.
The analysis of the value development in Y2016-2018 is published in the Classic Ferrari Value Development Report, which can be ordered here.