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The classic car market

Wednesday, February 15 2017 :: Keywords: classic cars, high-end luxury cars, supercars, uk used car market :: Permalink

We all regret those cars we passed over. I remember the rusty Isetta Bubble Car taken in part exchange, which I scrapped. Or the tatty 1965 Aston Martin DB5 I could have bought for £3,800 back in 1975, possibly worth over one hundred times as much now. Or the Iso Rivolta I nearly bought at the auction of a bankrupt garage; instead I bought a four-post lift. I could go on, but you probably have an equally sad list of regrets.

The point is that hardly anyone imagined how the various markets for collectibles – whether cars, motorbikes, stamps, antiques or comics – would take off and result in such generous returns on investment. Classic cars have proved to be an exceptionally good investment with returns outstripping stock markets, house prices and gold, as even a cursory inspection of the Historic Automobile Group International Indices (HAGI™) will reveal. And it’s not just the buying and selling of these investments, restoration is big business too.

Reliable estimates for the size of the UK market for classic cars and restoration are hard to come by, the problem being that dealers and restorers are often involved with more than what we would understand as ‘classic cars’. There is considerable overlap with supercars, high-end luxury cars, and even racing cars. It seems to be a very eclectic business with lots of grey areas. A ‘ball park’ figure for the annual market size is probably north of £5 billion.

Looking at the accounts for some of thriving classic car businesses will leave many franchised retailers, and independent used car dealers, green with envy. One of the most successful is DK Engineering in Beaconsfield. In 2015, Ferrari specialist DK Engineering employed 34 staff, turned over £90.9 million and made a pre-tax profit of £5.9 million.

Whereas DK Engineering is highly focused on sales of classic Ferraris, and their restoration, there are many more businesses with diverse stocks of classics, supercars and high-end luxury cars. A good example is William Loughran near Preston, established in 1978. From a small stock of around 20 vehicles, William Loughran turned over £20 million in 2015 with a pre-tax profit of £2.9 million.

But before throwing caution to the wind and investing in this apparently lucrative industry, it is worth considering the complexities. Like antiques, classic car sales are all about contacts. It’s about who you know. And although many cars you see for sale in classic car magazines are commission sales, the real money is in buying, owning and restoring what you subsequently sell. So, you need more contacts to buy right.

That brings us to restoration. This really is specialised. Very few classics come ready to sell or only require a quick valet and service before display. Think in terms of £100 per hour and hundreds of hours. Yes, the return on classics can be amazing but the investment is substantial and thus high risk. It is not for the feint-hearted.
Written by Trend Tracker director Chris Oakham, this piece first appeared in the subscription monthly Auto Retail Bulletin.

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