lex@CHROMETEMPLE.com
+614 04 84 64 24
Specialised Investment and Lending Corporation Pty Ltd AFSL number 407100
ACN 149 520 918
investors@silcgroup com au
CHROME TEMPLE Investments Pty Ltd ACN 640 888 026 (Investment Manager), a corporate authorised representative (number 001284056) of SILC Fiduciary Solutions Pty Ltd ACN 638 984 602 (AFS licence number 522145) (AFSL Holder) The authority of the Investment Manager is limited to general advice and deal by arranging services to wholesale clients relating to the CHROME TEMPLE Investments Mach 1 Fund (Fund) only Specialised Investment and Lending Corporation Pty Ltd ACN 149 520 918 (AFS licence number 407100) is the trustee (Trustee) of the Fund and the issuer of the information memorandum and supplementary information memorandums This document contains general information only and is not intended to provide any person with financial advice or offer of any kind Prospective investors should carefully consider the contents in the information memorandum and supplementary information memorandums in full and seek professional advice prior to making any decision regarding an investment in the Fund No reliance may be placed on this document for any purpose nor used for the purpose of making a decision about a financial product or transaction Information relating to the Fund contained in this document has been prepared without taking into account the objectives, circumstances, financial situation or needs of any person, and may differ to information contained in the information memoranda This document may also contain forward looking statements regarding our intent, belief or current expectations with respect to market conditions Past performance and/or forward looking statements are not a reliable indicator of future performance Except as required by law and only to the extent so required, neither the Investment Manager, Trustee, AFSL Holder nor its affiliates warrant or guarantee, whether expressly or implicitly, the accuracy, validity, timeliness, merchantability or completeness of any information or data (whether prepared by us or by any third party) within this document for any particular purpose or use or
that the information or data will be from error Further, the Investment Manager, Trustee and its affiliates expressly disclaim any responsibility and shall not be liable for any loss, damage, claim, liability, proceeding, cost or expense arising directly or indirectly and whether in tort (including negligence), contract, equity or otherwise out of or in connection with or from the use of the information in this document
IMPORTANT: Past performance is not indicative of future performance and the expected returns of the Fund may not occur as expected or at all An investor's balance in the Fund may decrease as well as increase in value. All statements that indicate expressly or by implication an expectation of investment returns are based on reasonable assumptions and commercial judgement and no representation is made or assurance given that such statements, views, projections or forecasts are correct or that the expected returns will arise or that investment balances in the Fund may not decrease You must read the Disclaimer and the contents of the Information Memorandum in full to understand the risks involved in an investment in the CTi Fund.
1 Past performance is not indicative of future performance
2 Calculated as the percentage diff erence in unit issuance price as at 30 Sept 2022 compared to 30 June 2022 (YOY) and 30 Sept 2021 (QOQ), net of fees (pro forma for performance fees)
3 Forbes “Do Higher Interest Rates Hurt the Stock Market” 20 Sept 2022
4 Comparative indices results are before fees The S&P/ASX 200, FTSE100, NASDAQ, Gold (in AUD), Bitcoin (BTC AUD), S&P 500, HAGI and Hagerty indices are calculated as their 30 Sept 2022 prices vs 30 Sept 2021 prices (YoY) and 30 Sept 2022 and 30 June 2022 (QoQ) Stock market indices obtained from Yahoo Finance and Wall Street Journal HAGI and Hagerty obtained from Yahoo Finance and Wall Street Journal HAGI and Hagerty obtained from their respective websites
5 Hagerty “Are Classics Finally Cooling
Off?” Greg Ingold October 2022
6 Hagerty “The Market Hasn’t Lost Steam” Greg Ingold October 2022
7 Hagerty “Monterey Auctions Day 1” John Wiley August 2022
8 Hagerty “The Coronavirus the Collector Car Market” John Wiley March 2020.
9 Hagerty “Economic Factors On Car Collectors” John Wiley June 2022
10 Hagerty “Inflation Collector Values” John Stoll May 2021
11 Art Newspaper “Inflation What It Means For the Art Market” James Goodwin May 2021
12 MWC Group “Art & Inflation Accel eration” April 2022
13 Hagerty “Rising Interest Rates
Collector Cars” John Wiley August 2022
14 Hagerty “Collector Cars Aren’t Headed For A Crash” John Mayhead July 2022.
15 Hagerty “Oral History Ferrari Bubble” Ken Gross April 2022
16 Gross vehicle returns compare their 30 Sept 2022 valuation to their acquisition (Launch), 30 June 2021 (QOQ) and 31 Sept 2021 (YOY) values If a vehicle was purchased between the starting period and 30 Sept 2022, then the acquisition price was used as the starting value If the vehicle was sold before 30 Sept 2022 and acquired after the starting period, then its sale price was used as its ending value Gross vehicle returns exclude deposits
17 Hagerty Market Rating
18 HAGI Top Index (Historic Automobile Group International)
19 Hagerty “Tracking Big Buck Cars” John Mayhead July 2022
20 Prices are before fees and were rebased to 100 Mach 1 results unit issuance price, net of fees, including performance fees
21 Hagerty “A Season of Change” John Mayhead September 2022
22 Classiccom Auction Results, Monterey 2022” August 2022 Gooding& Company and RM Sotheby’s results
23 Hagerty “View from Inside” Eddy Eckhart September 2022
24 Hagerty “Analog supercars carry Monterey” John Wiley August 2022
25 Cars Guide “Sales Statistics” Stephen Coby April 2022
26 Hagerty “Manuals Matter” Andrew Newton September 2022
27 Hagerty “Monterey Has Wrapped” John Wiley August 2022
Lex Pedersen takes a look at the Fund's YOY and QOQ achievements and what the current market means for the Fund.
We take a closer look at how important macro-economic factors are to the collectible car market.
PORTFOLIO IN REVIEW
Overview of the Fund's portfolio composition, performance to date and outlook.
MARKET REVIEW
THIS QUARTER'S PODIUM
Take a look at the Fund car that Jeremy Clarkson thought was "too fast".
BY: LEX PEDERSEN
Heavy storms seem to be looming on all fronts these days, and I am not just referring to the weather Australia has been facing with this year’s triple Niña phenomenon Inflation is up Interest rates are up. Corporate earnings are down Pressures are mounting from the impact of an ongoing war in the Ukraine, threats of a global recession, concerns about the European energy crisis, supply chain issues affecting retailers and new car production, and anything else you wa
nt to throw in that bucket. But despite the state of the major world economies at the moment, we here at CTi sit in the privileged position at the eye of the storm, buffered against many of these conditions because cars are performance driven in more ways than one
Our latest quarterly update indicates a strong, but slightly more rational market. The Fund generated +11% YOY and +1% QOQ net returns. This compares to declines across the board FTSE ( 3% and 5%), ASX/200 ( 12% and 12%); S&P 500 ( 17% and 16%); and NASDAQ ( 27% and 22%); YOY and QOQ, respectively.
Compared to the markets this is a good outcome. However, we are acutely aware that the Fund's results were negatively impacted by the relatively little new investment to take advantage of num erous buying opportunities. Given acqui sition returns are an immediate source of double digit return opportunities, they can have significant benefits, of which we were devoid of this quarter.
We know from our discussions with potential investors that some people are holding out for fear of what the car market will do. Several observers have all been wondering how long the collector car market’s historic hot streak can carry on, and what the inevitable fall off might look like. There have been concerns that the market had already peaked, that economic uncertainty would register even with the ultra wealthy, or that maybe the
re was simply more great stuff on offer than there could possibly be buyers.
So, what does happen when a red hot collector market is pitted against a cooling economy? Despite external variables continuing to threaten to put a damper on enthusiasm for buying collector cars, the truth is that macroeconomic factors don’t affect classic car buyers or the vehicles they want equally
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As we explore in this report, not only is now the time to hold onto your collector cars it's actually an opportune time to buy. If the Fund can capitalise on this favourable buyer's market, then, when coupled with the instant appreciation uplift from the soon to arrive Aventador, the Fund's returns are wealth preserving at worst and strongly promising at best
Tell me if you’ve heard this one before, vehicles are a strong investment class during economic downturns Of course, you’ve heard it before and very likely more than once from me I admit I’m at risk of sounding like a broken record when I am waxing lyrical about the benefits of vehicles as an investment class in general, and more specifically the vehicles that fit our investment thesis tomorrow's classics.
I find it near impossible to focus on anything else because I’m reminded of this in just about every encounter I have whether it’s the calls I’m fielding from sellers about another great opportunity for the Fund (there is so much on offer) or reading headlines about increasing inflation. Whilst I can talk about how vehicles offer a natural hedge until I’m blue in the face, I appreciate that rhetoric might not be enough to assuage concerns about where the vehicle market is headed so in this edition we are sharing some additional information on the subject. I hope you find it interesting.
F E A T U R E | W H A T D O E S T H E E C O N O M I C O U T L O O K
M E A N F O R C O L L E C T I B L E C A R S ?
Although the health of the collector car market might not be a major focus for many people right now, it is ours (obsessively so). We’ve researched the factors that are important to the collector car market and which one’s aren’t to understand what current macroeconomic factors are most likely to impact the performance of the car market (see table).
There are a couple of genuinely interesting observations we uncovered around how strongly a particular factor features by value of the car
I've said before that vehicles are uncorrelated to the stock market one of the myriad of benefits I've touted about investing in this class. I've been challenged on this point before, with people doubting that stock portfolio value loss won't permeate across by impacting discretionary spending
Whilst I understand the scepticism, the data shows that the stock market's ups and downs only impacts the lowest price and quality cars, not Fund cars. If we unpack this, it comes down to two related forces. Firstly, someone who buys a $1mm
car is in all likelihood motivated by different economic factors than one who picks up a $50k vehicle And secondly, the vehicle market benefits from a trickle down substitution effect when the economy and stock market losses value.
As discretionary funds become smaller, those that used to buy $500k $1mm cars substitute with $150k $400k cars Yet, as noted in the first point, those that already could afford +$1mm are likely to still be able to afford +$1mm cars.
For $150k plus value cars, bidder confidence is less influenced by unemployment than we originally assumed it would. But when we unpacked this trend, we found that similar forces to that of the stock market impacted the influence of unemployment on bidding behaviour.
The most surprising data point to us was how little the auto loan rate influenced bidding behaviour. It is easy to assume that as people hold onto dry powder and limit discretionary spending, they may need to rely on car financing to purchase vehicles. And with increasing interest rates, you might think that the auto loan rate would negatively impact behaviour
at all levels However, as we go into in more detail later in this report, the data shows that classic cars are bought with cash, so the auto loans rate is much more likely to influence new car buyers
When the residential real estate market takes a dive, an effect might be that homeowners sell the classic in their garage. This becomes a problem for the car market if supply outstrips demand. And while that is likely to happen for vehicles that are sub $150k, if you read the industry section of this report, you’ll see that the demand for Fund cars remains healthy and fluid. With supply available and demand healthy, it will buoy the value of the Fund’s target vehicles, while producing good buying opportunities for those of us with the expertise to find and negotiate a good deal
The data across a myriad of factors shows one consistent trend, vehicles above that $150,000 price point think Fund cars might see little change in demand , while these same dynamics produce the potential for some good buying opportunities for the savvy hunter
The bottom line is: if, like the Fund, you can afford to hold on to your classic, take the long view now’s the time to buy
The world doesn’t end very often, but when it does and inflation becomes institutionalised, the collectibles that tend to appreciate the fastest are portable and private While long run spikes in inflation are a killer for rising food and fuel prices, its impact on the collector market isn’t as cut and dry. And whilst we know this to be true from our and other collectors accounts, we admittedly generally don’t have reliable data on collector car values from the last era of major inflation (the ‘70s and early ‘80s). But, we do know how other tangible assets namely art performed.
Art was viewed as inflation proof in ways that were to be tested from the middle of the decade for the next fifteen years. US inflation rose in three waves from under 2% to 6% to 11% to 14% in 1965, 1970, 1974 and 1980 before descending in phases to the present Meanwhile, the stock market, which had been rising strongly since 1949, reached peaks in 1962, 1966 and 1968, before being struck by a slow developing bear market, which accelerated after a major fall in 1972, and lasted until 1980. In the art market, the effects of inflation and wealth diversion became apparent during those decades For art and collectable, the peak years were 1971 to 1974 and 1977 to 1980, supporting the view that rising inflation buoyed the market up to a point.
Indeed, collectibles were not just a cautionary play during the inflationary ‘70s and early ‘80s, they were engines for profitable growth when yields were otherwise hard to find In the 1970’s, when economic “stagflation” was king,
"The collectibles that tend to appreciate the fastest are portable and private."
Bank of America said real assets far out performed popular financial instruments like blue chips, government bonds, and cash. But don’t assume that tangible assets like art and cars are just an inflation hedge. These collectibles can act more like equities in periods with healthy inflation. That doesn’t mean any classic car (or artwork) will hold its value during a period of inflation or act like equities in a low inflation periods.
Overall, though, demand for collectibles, especially cars, is expected to outstrip supply for years to come, thanks to the number of collectors emerging from the millennial crowd and the expansion of online selling platforms If inflation takes hold, car enthusiasts might be joined by investors looking for real assets. And cue my old "diminishing supply, expanding demand" rant
Let's
acts of rising interest rates and inflation If the efforts to curb inflation go overboard and set off a recession, enthusiasts might be less keen to splurge on the car they've always wanted, and appreciation could slow (not decline but slow). Yet, what data can tells us is that collector cars are well prepared to weather any economic storm that comes
First, let’s start by exploring the last crash in the collector car market in the 1990’s Leading up to the ‘90s car market crash, there was a run up in demand for high end luxury vehicles a la Wolf of Wall Street Speculators entered the market wanting cars that went up in value without understanding the underlying fundamentals that drive car value in the long run.
If this sounds familiar it's because we've seen this happen very recently in the commuter car market. Speculators entered a red hot market without understanding that the pricing influences
were only temporary the supply shortage caused by manufacturing and logistics delays were not in fact lasting diminishing supply factors. Today, speculators chased commuter cars, but back then it was Ferraris that speculators were buying.
In 1987, when the stock market took a terrible dump, speculators got very nervous about the stock market, and they decided they wanted hard assets Back then, it was really just a whirlwind of huge appetite for high profile cars from people in mainly the financial sector, who didn’t really know anything about cars
But perhaps the most important factor that led to the crash in the ‘90s is also the one that differs the most from today's market In the '80s most people were borrowing heavily to buy Ferraris. Lots of car collectors weren’t collecting with their own money, they were borrowing at very high interest rates Once prices started to dip, the excessive borrowing with rising interest rates meant these buyers found
themselves in a value hole and they were forced to sell to keep the banks happy.
That helps explain why the collector car market corrected but didn’t crash after peaking in 2014. From about 2005 to 2008, the industry again started to lend on some very valuable cars, but when the global financial crisis hit, it all dried up. Banks suddenly didn’t want to lend, and many countries tightened lending rules. The lending market almost closed for a while as a result, and vehicles had to be purchased with cash rather than debt This meant that after the prices peaked again in 2014, the decline was soft and avoided a crash. Sellers who didn’t get offers they expected simply shrugged and took their cars back home. Few were forced to sell by their banks, and that stabilised values
Today’s collectors overwhelmingly own their own cars, which means the pressures of rising interest rates won’t result in forced sales that flood the market with fire sale supply
- PresentToday, we are more aligned with the conditions in 2014 than the ‘90s. Obviously, some areas of the market will drop. Others will remain static. But ultimately, we are in a very different place to the late '80s and early '90s.
First and foremost, the ecosystem of car collectors has grown much bigger and more diverse over the decades. These people vastly outnumber the speculators who will dump their cars the moment the returns don’t make sense on a spread sheet. The number of resources (Face book groups, events, social media, cars and coffee, etc) are unimaginable compared to decades ago. Collectors are more knowledgeable now thanks to YouTube heroes than ever before.
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Technology has also transformed how and where we transact on vehicles Historically, among tangible assets, cars were considered tougher to move than other collectibles (like art). But now with the growing acceptance of online trans
actions and auctions, there’s much more liquidity and transparency on the value of vehicles So long as a buyer isn’t in a fire sale situation, these channels permit a more knowledgeable exchange of information and negotiation.
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They also mean collectors who need some liquidity have the ability to sell other investments before they have to sell their prized vehicle position. Afterall, although cars are easier to unload vs a house, investors now have control of selling other possessions (from watches, to art, to sneakers, to stocks in their trading portfolio) across multiple platforms for liquidity. Back in the 1990s even standard stock investments had to be managed by a stockbroker and sold following an exchange of letters. Today, all of these can be cashed out through an app and back in your bank within hours.
But maybe even more reassuring for the Fund, is that we have actively avoided purchasing vehicles that were caught up in the frenzy and only target(ed) cars that were supported by underlying valuation fundamentals Our vehicles provide an opportunity for value creation and preservation during this inflationary period and in the long term.
Further, we need to recognise that new supply for Fund cars have ceased due to external forces It isn't a temporary shortage like the recent influences on the commuter market It is a permanent termination to production of Fund cars.
All these factors considered, the market for vehicles of distinction will endure (and industry trends support this).
When all the traditional markets post double digit YOY and QOQ declines FTSE ( 3%) and ( 5%), respectively; ASX/200 ( 12%) across each period; S&P 500 ( 17%) and ( 16%), respectively; NASDAQ ( 27%) and ( 22%), respectively; and BitcoinAUD ( 50%) and ( 53%), respectively the Fund's positive returns are comparatively good. However, we are acutely aware that the Fund's results were negatively impacted by relatively little new investment to take advantage of the buying opportunities that generate acquisition returns. Given acquisition returns are an immediate source of double digit return opportunities, they can have significant benefits Considering that the results reflect only hold strategy returns, we double down on our belief that the Fund not only represents a strong sources of wealth preservation but with more capital the Fund can generate strong returns in this market 1,2,4
CTi valuations are based on the mid point of the third party assessment valuation range
Note: while the Fund's results are reported net of fees (including performance fees), the comparative indices do not adjust for fees or holding costs, they are listed on a gross basis
CARS CONTINUE
The Mach 1 Fund, Hagerty and HAGI are all outperforming gold and traditional markets, QOQ and YOY alike. Note: HAGI and Hagerty returns do not report costs (eg storage, maintenance, etc)
Not surprisingly gold, with its hedging nature, was the only other comparative index aside from cars to generated YOY and QOQ growth. But cars continue to outperform gold while providing a better risk/reward profile. What may surprise investors is how varied the results of the different car indices can be.
Whilst HAGI, Hagerty and the Mach 1 Fund all posted double digit YOY growth, there is a +1,000 basis point difference between them The extent of the variance between their results is explained by each one representing a different part of the collector market.
Hagerty is based on US results, where inflation and stock market reactions have been much more severe than in Australia. Hagerty also tracks the results of vehicles across every marque, model, and price
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range When you consider that most segments in the car market continue to appreciate and those that had declines did not erase the recent gains, Hagerty's high returns reflect the inclusion of all the winning segments (hyper appreciated commuter market, "specialised" collectible cars, and the top dollar, top specimen cars).
HAGI is comprised of 50 cars that represent the top dollar cars (+$1mm), including the analogue supercars (Ferrari F40s F50s) that are driving the most recent value growth. These are the cars that the Monterey auctions spotlights and the YOY results HAGI reported are riding the Monterey results wave (consider that in August when Monterey's auctions were on, HAGI reported a +8% MOM increase, while the quarter only grew +22%)
While HAGI's lowest priced top 10 vehicle (by index weight) has an average value of
+$700k and all of HAGI's top 10 vehicles (by index weight, representing 95% of the index) are Ferrari's, the Fund's average vehicle value is $400k and Ferrari's only represent 50% of the fleet.
Suffice to say, the Mach 1 Fund is not as diverse (or speculative) as the Hagerty index, and not as top end and Ferrari focussed as the HAGI index But we pay particular attention to HAGI because as we explain elsewhere in this report, trends of these big dollar cars will trickle down to the tier of vehicles the Mach 1 Fund owns
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FUM grew by +4% QOQ. The Fund's unit price at 30 June 2022 was $1.22930, or $1.20358 pro forma for fees accrued in July but related to FY22 results. The 30 Sep '22 unit price of $1.21239 represents a +1% QOQ and 11% YOY increase, pro forma for fees
(Hagerty) $121 (HAGI)
(CTi Mach 1)
Overall, the collectable car market remains healthy. Car market gains were a tad more restrained than in previous editions, but these represent a healthy correction rather than a dangerous drop. To be clear, prices for most of the market are not dropping, they are merely stabilizing. Relative to other asset classes, that is actually good news
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Certain segments of the car collector market have observed drops, but these declines haven’t erased the gains from the last couple of years
What happens when a red-hot market meets a cooling economy?
We feel that this correction is inevitable and, to a certain extent, healthy.
The market went from irrational exuberance in 2021 to solid, rational demand over the course of this year. This indicates that the market is being driven by rational buyers and sellers, as opposed to speculators. For the Fund this means the market will focus on the best specimens with pricing expectations following underlying value fundamentals
The segments that have been particularly vulnerable to macroeconomic factors include vehicles worth sub $150k, muscle cars (which unsurprisingly also tend to fall in that sub $150k category), several of the 1960s and ’70s classics and up until the August Monterey auctions the older, more traditional classics We’ve also seen some decreases in lower quality examples that have been hitting the market in recent months. Notably absent from this list are analogue cars and cars of distinction eg the Fund’s target vehicles.
In fact, top end, best specimen, and analogue supercars seem particularly removed from these concerns. Recent trends have allayed concerns that econ
omic volatility will cool buyers’ enth usiasm with these segments especially.
We’re seeing signs of increasing separation between the most expensive cars and the rest Economic pressures don’t seem to be hampering the top echelon of car collectors, they have done extremely well, and the top end of the market remains very healthy Considering that high net worth and ultra high net worth make up this buyer audience, it is not surprising that the top of the market was most insulated from a future downturn, and that less significant cars would feel any potential brunt first. In an environment which “everyman” classics mostly struggled to keep pace with inflation, the big money cars rocketed up by an average of 17 percent.
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Whilst the Fund fleet might not include the top dollar (+$1mm) vehicles (yet), we keep track of these big money cars for one key reason: the value trajectories of those at the top of the market give us critical insight into the performance of the market as a whole. Vehicles at the top of the market often set the pace for those
that follow. There are clear mechanisms by which high end vehicles can drive up prices for those on the lower end One is Principle of Substitution. If a $100K vehicle appreciated 10 percent or more in the past year and is now beyond a certain shopper’s budget, they might very well look for a similar car (a substitute) still within their price range and buy that instead.
This isn’t just vague “trickle down” theory examining some 3,500 vehicles from popular marques with vehicles ranging from $10K to $1M+ show a clear trend. When the most valuable vehicles ($1 million+) from a brand have appreciated at least 10 percent year over year, less valuable ones from the same marque tend to appreciate The timing lag betw een top dollar vehicles and their lower
cost substitutes can be between a few months to two years, depending on the marque But the trend is almost universal the more valuable cars lead the way.
For some “lesser” marques, like Chevrolet, the most valuable cars depreciate last But for marques of distinction like, Ferrari, Mercedes Benz, Aston Martin, Jaguar and Lamborghini (e.g. Fund marques) looking for vehicles one pricing tier down occurs faster and with more ease because vehicles at all ends of the pricing spectrum for these marques still represent consistent and high quality substitutions to the +$1mm vehicle of the same marque. Put another way, a top end Ford is much different in quality than a low end Ford, but a “lower end” Ferrari still represents the top end of quality in the market regardless of price.
When the market was overheating in certain segments, we saw a number of lower quality examples flooding in from sellers hoping to capitalise on a red hot market In this more rational market, these vehicles are some of the first to stop receiving bids And it makes sense Inflation is hitting us all in the wallet while uncertainty in the stock market is hitting us all in the investment portfolio. Although classic cars, like many tangible assets, can be a hedge against such bad news, they are also, like other discretionary purchases, subject to pressures on consumers of average means
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Inflation and rising interest rates are removing some of the more price conscious buyers from the market who typically target relatively attainable vehicles and the lower quality examples But the buyers that remain are less price sensitive and are more concerned about the best example of a car even if it is a pricing tier down. In other words, provenance matters. Good news for us!
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We here at CTi are firm believers in this It is why we conduct thorough due diligence into the car’s physical, mechan ical and provenance condition before we bring it into the Fund This includes vetting previous ownership to ensure we are buying from owners that kept the service books current and who treated the car as a collectible from the onset (eg we bought from collectors not speculators). These concerted efforts are why we end up with best specimens of each vehicle we bring into the Fund, and why the average car in the Fund’s fleet is
11 years old and only has 11,000kms Further, 70% of Fund cars have less than 10,000kms and 50% have less than 5,000kms on their odometer (while still having an average age of seven). And we preserve this provenance by ensuring vehicles get scheduled for their regular maintenance and get enough exercise to stay healthy (without running up the odometer) We, like many experts, believe the best of the best will stay valuable. And we know that if it’s a great car, it’s almost certainly going to sell.
Meaningful cars will always have a place in the pantheon it just might take a little more time and effort to place the right car with the right buyer. But, there’s some promise on that end too, read on about how the universe of "right" buyers is expanding for the Fund's vehicles
Top dollar and top quality cars go hand in hand, but the most significant group of rising stars are the modern classic supercars Analogue supercars (from the 1980s, 1990s, early 2000s, especially limited edition to later Ferraris) are seeing lots of action. They have emerged as favourites at online auctions, but also perform well at in person auctions. And they make up the fastest moving collectible car segment: modern sports cars. In August’s Monterey auctions (home to the big dollar auctions), the modern analogue sports cars sold except
Provenance mattersmeaningful cars will always have a place in the pantheon.
ionally well, nearly every analogue supercar offered set a record price. These newer, modern (and more usable) collectible cars are now enjoying a market upset by those who now have the cash to buy the poster cars of their youth For a while now, the younger collectors have been transforming the market, and that transition only accelerated during the pandemic The acceleration was fuelled by online buying, which became the primary (and in some periods, only) way to buy and sell cars during the pandemic. These younger collectors not only had the means to buy their dream cars but are also very comfortable with buying high dollar items online. For this reason, much of the growth owes to long term demographic trends, namely the fact that Gen Xers are now entering their peak collecting years Boomers are about to be
eclipsed by Gen X in the marketplace, and the cars Gen Xers want are those cars that made the noise (in this case, both figuratively AND literally) in their lifetime.
Huge shifts within the auto industry also feed interest: as new cars become increasingly tech forward and removed from drivers, it’s reasonable to expect enthusiasts of all stripes will continue flocking to “analogue classics" Fewer than 2 percent of new vehicle sales in 2020 were manuals, no doubt buoyed by the fact that most manufacturers wouldn’t sell you a manual even if you wanted Conversely, the collector car market doesn’t reflect that trend at all. It’s quite the opposite, as nearly every vehicle is worth more with a manual.
What segment does the three pedal shuffle hit hardest? Modern era exotics
A manual transmission adds a whole lot to the driving experience More direct engagement between driver and machine goes a long way That’s especially true when our beloved collector cars are a tonic for the more clinical, modern daily driver.
We've reported on the Mucielago's big stick shift premium before. For manual V 12 Lamborghinis, the Murci was the end of the line, as the stick dropped from the Big Lambo with the introduction of the 2012 Aventador. As Gallardos have started to make that transition from used exotic to modern collector car, the open gate shifter is attracting more attention Music video casting credits aside, Gallardos likely have enduring star power Despite the Lambo's high costs, Hagerty reported that over 80 percent the insurance quotes they receive for Gallardos come from
Millennial or Gen X enthusiasts.
A generational shift need not be zero sum gain While a new breed of collectors gaining wealth are buying the dream cars of their youth, others continue to buy '60s sports cars or prewar greats for the values they have long traded at For the Fund this means that once a car reaches collectible status, there will always be demand for it, in spite of (and arguably because of) new collectors coming into the market who both increases interest and expand the definition of collectibles.
We’ve noted elsewhere that inflation could actually be driving high net worth collectors to put their money into significant cars as a hedge Yes, the wealthy have the means and the motivation to snap up expensive classics as a hedge against inflation and/or under
performing stocks, whereas middle class car enthusiasts find themselves pinched affording the basics. But what’s more notable is that market growth is occurring outside of just the realm of “standard class” and is further broadening the definition of a collector car.
One of the insulating factors for these analogue cars is the fact that they are traded globally. The market for top tier classics tends to be global, and as the Pound has nosedived, dealers tell us that global collectors are increasingly snapping up cars in the UK. While UK collectors might find themselves with less money to pour into cars for those with the means or the ability to borrow at relatively low fixed rates those same factors make this a very wise time to buy.
Of course, interest rates are a double edged sword. Those same factors that might make this an opportune time for global buying could spell disaster for those speculators who made risky purch
The share of financed vehicles quickly drops as vehicles age and levels off below five percent for most model years between 1960 and 1994. For some model years in the 1920s and 1930s, less than two percent of vehicles are financed.
There are two specific concerns here. The first is that, as lending rates rise, vehicles that tend to be financed are more likely to lose value as demand declines. This is, in essence, the same concern you’re hearing throughout the global economy that governments’ efforts to cool demand might work too well. But the larger worry is that if a significant portion of collectors have borrowed money to buy their cars, they’ll be in a hole should values dip and, perhaps, these owners will find themselves forced to sell to keep banks happy That’s the sort of thing that can turn a “correction” into a catastrophe (as it did in the ‘90s).
You’ll be happy to hear, collectors overwhelmingly own their cars outright today. Fewer than 1 in 20 vehicles 25 years and older are likely to be financed. On the whole, these are all low numbers considering that some 85 percent of new cars are financed.
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You might assume that the younger demographics that are feeding the growth in modern classics, might have less wealth on hand, and as a result might be compelled to borrow money to seize the tantalizing opportunity of a fast rising "investment." But that assumption would be wrong Even the far end of the age demographics shows that only 10 percent to 20 percent of the vehicles that Millennials buy are financed. Perhaps the young enthusiasts, who entered the workforce around the time the banking sector was melting down, learned a thing or two about the risks of borrowing.
In either case, these factors suggest that analogue cars are not facing a “house of cards” situation that can be brought tumbling down as inflation and interest rates rise Instead, the potential set of buyers is growing to include new age demographics (Gen Xers and Millennials), new financial demographics (high net worth collectors hedging their money wi
th cars) and new regional demographics
Although a humbling reality, there will be those who will be in the unfortunate position of having to sell vehicles for cash in this economy and, not unlike what we are seeing out of the UK, this does bring about a favourable buyers’ market And if there is one thing we can count on whenever there is an opportune buyer’s market, it’s that another group will inevitably come join the demand While most buyers continue to be enthusiasts, the market uptick, hedging nature of vehicles, and emerging buyers’ market has brought a few more investment oriented buyers to the plate. In other words, demand remains very strong, and it’s coming from a broader swathe of the population than ever before.
21, 23, 24
The fact remains that there is still an astonishing amount of money out there, ready to buy.
AVERAGE SHARE OF CAR FINANCING 1,13
THIS quarter we hero the F12berlinetta, the last (and in my opinion, only) beautiful naturally aspirated V12 Ferrari. When the youngest member of the CTi team was asked what he thought of the F12berlinetta, he got down right bibli
cal - "She is more precious than rubies; nothing you desire can compare with her." As long-time worshippers at the alter of the CHROME TEMPLE (get the name now?), we too are in awe of the F12berlinetta and we feel her values are still underweight.
We have our reasons for casting the F our first place pony in this edition o podium The astounding exhaust so a snarl that rises to a penetrating s Its dramatic yet dreamy architec which is a blend of Pinin farina class and the Italian avant garde. Rom as they sound, together, these elem advance the F12 to endless purpose automotive perfection That's why Fund owns more than one of t masterpieces and is eyeing more
No longer will these precious pedigrees be seen prowling and strutting the streets. With European emissions cutting at their circulation, these F12s are being replaced by lustreless electric appliances on wheels Lucky are those with Berlinettas tucked away.
What makes it so good? Simply, it is the best Ferrari of its generation and one of the greatest front engined cars ever made. It's also the most complete modern Ferrari.
Ferrari made a car so good that after 10 years, people are still talking about it.
It's not just a pretty body. It's got the heart and soul of a beast, a very big one that revs up to 8700rpm the soundtrack this engine produces is second to none.
By nature, art is subjective and as talented as they are in Maranello, let’s be honest not all Ferraris are that exciting to look at. But the F12 Berlinetta is unapologetically beautiful and unmistakably Ferrari.
It doesn't have a rear spoiler, so it uses aerodynamics to help the car stick to the tarmac.
If you think this car's design was
just for aesthetic appeal, think again.
C H R O M E T E M P L E C O M
