This 1994 McLaren F1 “LM Spec” is one of just two F1 models that were upgraded to LeMans specifications by the factory. It sold at RM Sotheby’s Monterey auction for $19,805,000, including fees.
RM Sothebys
Don’t look now, 1-percenters, but the air may be leaking out of the classic car market.
We’ve just concluded the 2019 iteration of Monterey Car Week, an annual gathering on the central Californian coast that’s a must-do for any deep-pocketed car aficionado.
Every year, a week of gasoline-fueled adventures and events for the uber-wealthy is capped off by the Pebble Beach Concours d’Elegance, the world’s most prestigious classic car show. Key among those events are several gilded evenings of high-dollar car auctions, hosted by the likes of RM Sotheby’s, Gooding & Co., Bonhams, Mecum and Russo and Steele.
Never an event for the faint of heart, these auctions are highlighted each year by multiple eight-figure high bids. This year’s crown went to a 1994 LeMans-spec McLaren F1 that sold for a cool $19.8 million, considered by many as the purest-handling supercar of the modern era; last year was highlighted by the $48.4 million sale of a 1962 Ferrari 250 GTO, the highest price ever paid for a car at auction.
Taken as a whole, the Monterey auctions are usually an important bellwether for the state of the classic car market.
This year’s results were grim.
Preliminary total sales came in at $245.5 million, a quarter-billion dollars yes, but also a 34 percent drop from 2018’s results, according to Hagerty, a classic car insurance company that closely tracks the market. That makes 2019’s results the lowest Monterey Car Week has seen since 2011.
Other metrics from the weekend were just as dire when compared to 2018.
The average selling price was down 36.7 percent to $319,610; the median sale price dropped 22.7 percent to $24,200; the sell-through rate (percentage of vehicles that actually sell) fell to 58 percent from 62 percent; the average high bid was 16 percent below the low estimate versus 10 percent last year.
“Whether it’s threat of recession, broad economic volatility or too many cars crammed into too few hours, there’s no denying this year’s Monterey Auction Week results were depressed when you compare the results to recent years,” Hagerty’s Jonathan Klinger said.
Of course, this isn’t the first time Monterey’s results have nose-dived. Sales plunged 72 percent from 2000 to 2002, and they fell a relatively modest 14 percent from 2008 to 2009, according to Hagerty. And the broader classic car market also plunged in 2009 and 1990.
But those drops were fueled by fallout from the Great Recession and a speculator-fueled bubble bursting, respectively, according to Klinger.
“This year seems to be more anticipatory and reflective of broader market jitters,” Klinger said.
The bad news isn’t limited to just Monterey either. Car auctions throughout 2018 and into early 2019 saw their own sell-through rates drop 20 percent, according to Hagerty’s data.
It’s still too early to know whether these recent dips are just mild market corrections after years of hearty growth or signs of something more ominous.
In addition to fallout from broader market concerns, classic car prices may also be feeling the effect of two of life’s constants: death and taxes.
We’ll start with the taxes.
As outlined here, last year saw changes to a portion of the tax code (Section 1031 for the CPAs out there) that had previously allowed the capital gains tax on a sale to be deferred if the proceeds were used to buy another collectible.
Since many wealthy car collectors regularly or at least occasionally rotate one or several models out of their collection to make room for their newest acquisition, this was a crucial allowance. It is no more, and the market is likely feeling the effects of this change.
The death part involves baby boomer collectors starting to die.
Boomers have driven the classics market for a while now. Thus the machines that they’ve deemed valuable and worth collecting are broadly considered valuable and worth collecting. This group had favored high-performance post-war models built between the early 1950s and mid-1970s, cars that Boomers lusted over when the cars were new, and the Boomers were young and unable to buy.
Demand for these blue-chip vehicles has largely priced Gen X and Millenial buyers out of the market. But unlike the cars they’ve collected, Boomers have a shelf life. As they start to pass on to the great highway in the sky, the increased supply of their cars on the market will (or already has) push values down.
At the same time, younger collectors have also gravitated to their own contemporary classics, models which they yearned for when they themselves were kids. Thus, we’ve witness the rise of the 1980’s market, pushing skyward the values of everything from early BMW M3 and M5s, Japanese icons like the original Acura NSX, the Toyota Supra and Nissan’s Z, Audi’s Quattro, a bushel of Porsche models (959, 930, 964, 928, 914 and 968) and a pile of other noteworthy cars we’ll skip for brevity.
Thus, death, taxes and uncertainty are beginning to take their toll. Whether it’s merely a bump in the road or a full-scale road wipeout remains to be seen.
