Investing in Collectible Cars for Pleasure and Profit

This year’s annual series of auctions of rare automobiles on the Monterey Peninsula in California features offerings for all tastes and collecting levels. At Gooding & Company, the official auction house of the Pebble Beach Concours d’Elegance, a 1966 Ferrari 365 P Berlinetta Speciale “Tre Posti” will cross the auction block. Farther down the peninsula at Quail Lodge, a 1963 Ferrari GTO will be offered. Both of these automobiles are projected to fetch millions of dollars. At those prices, collectible cars are rivaling fine art for value and prestige.

For those who can afford it, the decision to own a classic vehicle can be driven equally by investment goals and esthetic appreciation. While a Ferrari GTO’s skyrocketing value makes it a prudent investment diversification—as long as the current bull market in rare cars continues to roar—the car is also an object of pure beauty, its gentle curves evoking a masterful sculpture.

For the past four years, the collector car market has been on a steep upswing, with several cars reaping prices formerly confined to a Van Gogh or Picasso. When the hammer fell in July 2013 on the sale of a Mercedes-Benz W 196R for a record $33 million at auction, investors reached for the nearest handrail—the price was almost double the previous record set in 2011 ($16,390,000) for a 1957 Ferrari 250 Testa Rossa. Five weeks later, a Ferrari 275 GTB/4 NART Spider went for $27.5 million, proving that the new high-water mark was not a singularity. Recent private sales have commanded higher prices, with a 1963 Ferrari 250 GTO reportedly selling for $52 million in October.

It’s not just the high end of the market that is roaring—even rare cars priced in the six-figure range have obliterated previous auction records. So says David Gooding, president and co-founder of Gooding & Company. “Certainly, it has all the ingredients of being a record year, although you never know until you get through the last lot,” he said. “The value of the offering we have this year is greater than we’ve ever had before. Cars are now recognized the world over as an asset class, and they’ve been wonderful investments.”

Cherry Picking

Such investments underline the critical importance of managing the physical risks of collectible cars, which are subject to more unusual hazards than the typical threats like theft, fire and damage confronting other works of art. As Adam Wolfson, owner and president of Wolfson Insurance Brokerage, Inc. in New York, said, “Their owners frequently like to drive them—fast.”

Adam’s insurance agency serves the insurance needs of high-net-wealth families. Interestingly, he and David were roommates at Skidmore College and remain close friends today. “We graduated in the Class of ’89,” Adam said. “David’s dad was a collector and curator of rare cars and it rubbed off on him. David and his wife, Dawn, completely built their business literally in the laundry room of their home.”

Both men are repositories of automotive knowledge—David with an encyclopedic memory of historic automobiles, and Adam with his keen insight into the cars’ singular risks. Each expert can wincingly recall a major vehicle loss. “A few years ago, the owner of a beautiful Italian sports car worth north of $1 million experienced a total loss when the car went up in flames,” David said. “The vehicle was being driven by a mechanic who failed to carry along a fire extinguisher.”

Adam cited a client who collected mid-century Mercedes-Benz automobiles who had been claim-free for 10 years when disaster suddenly struck. “He backed one of his Mercedes out of his garage in Southampton (New York) into another one of his Mercedes,” he said. “He called me up and was very apologetic. The combined damage was more than $150,000.”

Preserving the physical integrity of rare automobiles insists upon dealing with an insurance agent who knows the difference between a Hyundai and a Maserati from an insurance and risk management standpoint. Adam is that kind of agent.

“There are steps one must take with regard to preserving and insuring rare cars that don’t necessarily apply with one’s drive-around vehicle,” he said. “For instance, if you’re having the car worked on, you need to use a repair shop that specializes in that particular automobile model, understands its value and has access to suppliers of vintage parts.”