Monterey—The Gooding Auction: An Asset Class Makes Itself Known

After messing around with collector cars and the market since the second half of the 1970s, you come to believe you have seen just about everything. How wrong I was, for Gooding’s Pebble Beach Auction marked the first time I personally felt—for lack of a better word—fear at such a venue. A strange assertion, to be sure, but when you see things happen with some consistency that you don’t initially understand, you can’t help but feel a bit rattled.

So what got to me? Too many cars sold for money that made no sense.

When one invests in the stock market, there are certain parameters you can use to determine if a company represents good value. My favorites include the good old price to earnings (P/E) ratio, price to book ratio, free cash flow, and dividend payout history.

The collector car universe has no such data points, so two of the main parameters one normally looks at first are the marque (the car’s manufacturer; I don’t use the word “brand,” for that should only apply to things such as aspirin and toothpaste) and the model’s production run (the number made). Then there are variables like coachwork (the car’s aesthetics), condition (is it restored, original, a bucket of bolts, etc.), competition history (if any), provenance (its history from the moment it was made to present), and so on. Throw these data points together, and those who have been around this nutty arena long enough have a general idea of how Car or Marque A compares to Car or Marque B in the grand scheme of things.

For instance, a Porsche 914 is going to pale in terms of desirability and value compared to a 1973 Carrera RS, a model one could realistically say remains Porsche’s greatest ever road car. And the RS’s value will pale next to a 917 (probably Porsche’s greatest competition car), which will then pale compared to a Ferrari 250 GTO (near or at the top of the greatness pecking order).

After enough time goes by, you get a gut instinct for a car’s value based on its place and standing in the general automotive universe. Thus, when prices at Gooding’s went haywire, and not in isolated cases but with some frequency, it got my attention and held it.

Three examples will help. First was an unrestored Ferrari 410 SA that I thought would bring in the upper $1’s (say $1.5-1.8 million). Yes, its marvelous unrestored condition was a big plus, but an opening bid of $2.1, with a final sales price of $2.9+? I was shaking my head.

More startling was the Fiat 8V Elaborata, which I expected to do around $600-700. Sorry pal, try the $1.1 million ballpark. Or how about the Siata 208 S (say $800,000) that brought around $1.5. I’ve driven a 208 S and there’s no question it’s one sweet ride, but even with those aesthetics and its great road manners, it’s not 1.5 worth of “sweet” in the grand scheme of things.

With a hammer price of $14.9 million ($16.3 including buyer’s premium), this sale and others signified the right collector car has vaulted past being a prized automobile, and become a new type of asset class.

After sleeping on the winning bids, and spending a night yakking away with an astute investor friend with a killer collection, the “why” behind the lunacy fell into place. For months I’ve been telling colleagues and friends (including that investor) that all the money the Fed has been printing for the past several years will affect collector car prices. After all, if there are only 21 Ferrari pontoon fender Testa Rossas at the beginning of this year and 21 at the end of it and the Fed prints a trillion more dollars, the relationship between TR’s and dollars has definitely altered.

Thus, the $16 million price the prototype TR brought was no surprise, and I actually thought it was a bit cheap, given that car’s place in Ferrari and automotive history. This is where my investor friend chimed in, as he beautifully summed up all my thoughts in one sentence.

“Cars,” he noted, “have become an asset class.”

He’s right, and I’ll amend that by saying certain cars have definitely hit asset class status. Ford Pintos don’t qualify but a Ford GT40?

Now that’s an asset I’d love to own.

Prior to the auction, we all knew the Ferrari 250 Testa Rossa prototype would bring big dollars. The only question was how much.

With a hammer price of $14.9 million ($16.3 including buyer's premium), this sale and others signified the right collector car has vaulted past being a prized automobile, and become a new type of asset class.