Can classic cars boost your finances as well as your heart rate?

Classic cars can certainly set the pulse racing, but price data shows that over the longer term they have also been high-performance investments.

Average prices raced ahead by more than 300% over the past decade1, outpacing returns from most stockmarket indexes over the same period.

They have also performed better than other collectibles such as wine and art, according to a study of long-term investment returns2. Based on price data going back to 1980, classic cars have been the “star performer” among so-called investments of passion.

While classic cars continue to excite, however, the most recent picture has been less positive from an investment perspective. The Historic Automobile Group International (HAGI), which tracks classic car prices, reported a 4.6% annual decline in its headline index for February – its first fall since 2010.

Reporting this drop in values, the Financial Times said that after many years of double-digit percentage growth, “the wheels have finally come off the classic car rally”. Sales volumes have fallen and buyers are being more selective on marques and models.

Prices for Jaguar Series 1 E-Types, having peaked at US$230,000 in 2015, had fallen to US$180,000, the FT reported. The price of a 1973 Porsche Carrera 2.7 RS, a cool US$800,000 in spring 2017, was down to US$690,000.

Elsewhere however, auction sales data3 shows that the right car can buck the trend, highlighting a recent spike in prices for the 1967 Corvette Stingray V8, with one sale last year at €548,000, compared with €195,000 in 2015.

This indicates the potential volatility of classic car prices and owners should be wary of extrapolating strong past returns into the future. If you buy the right model at the right price, you might see a good uplift in value in just a few years. But if you pay a premium price just before an economic downturn, you could be left with an asset that suffers a sharp drop in value.

There are a number of other considerations for investors too, such as maintenance. Regular costs can mount up and spare parts may be expensive. Owners may also incur storage costs. And with restoration projects, the work may cost more than the value that it adds.

Compared to most traditional financial investments, so-called custody and transaction costs can be high as well – there can be hefty commissions for selling by auction, for example. The general investment advice, therefore, would be for classic car owners to buy for the long-term, so diluting the impact of these costs.

On the positive side, one notable plus for investors is that classic car profits are generally tax-free. Unless you are regarded as a dealer, there is no capital gains tax (CGT) on any profit made when you sell a car – they are deemed to be a ‘wasting asset’ by the taxman.

There is also an argument that classic cars could be a useful diversifier for a conventional investment portfolio: because their returns are uncorrelated with those from shares, property and so on, they can reduce overall risk.

Marc Wilkinson of Brewin Dolphin says: “Classic cars aren’t a conventional investment, but for some owners, it can make sense to hold them alongside a larger, mainstream portfolio.

“However, we would recommend that individuals do not hold too much of their wealth in an illiquid asset like classic cars, and, despite their impressive long-term financial performance, for many people they won’t be suitable assets for a long-term savings portfolio.”

Brewin Dolphin, one of the UK’s leading wealth managers, is delighted to be sponsoring The BVAC Classic at Thirlestane Castle, and is displaying ‘Napoleon’ – a beautiful and rare 1922 Delage.

The value of investments can fall and you may get back less than you invested. Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.

The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

Brewin Dolphin Limited is a member of the London Stock Exchange, and is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number: 124444).

1Knight Frank Luxury Investment Index Q4 2017: 10-year growth of 334%
2Credit Suisse Global Investment Returns Yearbook 2018
3AXA Art Classic Car Report 2017