The Pros and Cons of Investing in Classic Cars

So you might say to yourself, "I really dig old Chevy Camaros. If I could find one in pristine shape from the 1960s and '70s muscle-car era, I'd buy it and treat it like an investment." But what if you don't have a cool million to pick up a coveted 1969 ZL-1? Well, what you need is a classic car investment fund.

And in the UK, one has been created -- although it's focusing on vintage Ferraris and Mercedes, not legendary Detroit iron. Here's the rationale, as detailed in the Guardian:

The... fund wants to cash in on growing demand for so-called "alternative" investment classes, such as fine wine, whisky and art, which look more attractive after wealthy investors saw the value of share and property holdings collapse in the credit crunch. "It is art on wheels," says [founder] Ray Bellm.

PROS

• Getting in on limited supply. Classic Ferraris, for example, were produced in very small numbers and change hands infrequently. But the overall market for them, according to Bellm, is upwards of $5.9 billion. If you have the money to get into the fund, you don't even have to actually own the cars. Or maintain them, which for aging classics, can consume huge sums every year.
• Holding value. Most truly classic cars are uniformly acknowledged classics and are on an ever-appreciating, or at last rarely-depreciating, value curve. On you own, you can take your chances with cars that have just reached or might someday achieve collectible status. But via a fund, you can cut to the chase. This has the added benefit of negating a "hedging" strategy -- with values stable or moving higher, it's not an imperative to offset losses.
• Diversification. Funds are clearly a good way to diversify without having to plunge into an asset class full-scale. Bringing classic cars into this picture adds another layer. And you have the fund managers absorbing the majority of the speculative risk.

• Limited supply. Classic car production seems to be dropping off, as vehicles become more oriented toward practical transportation and efficiency, rather than aggressive styling and performance. Even latter-day Ferraris, while often gorgeous, lack the potential investment appeal of their famous forebears. This is not the case with art or wine -- the art market renews itself by the arrival of new, collectible artists who are crowned by the art establishment (galleries, museums, etc.), while reasonably collectible vintages of fine wines occur every decade or so.
• Maintenance. Art and wine need to be cared for, but both "products" were developed so long ago that the requirements of 20th-century upkeep don't enter the investment equation. Sure, you can't store art or wine any old way. But a vintage Mercedes needs to, you know, start when a collector considers buying it. And run. And be drivable. And have access to spare parts. And as anyone who has owned an older car knows, little things are forever breaking. This cuts into return-on-investment.
• Returns. By concentrating on only the most collectible European cars, the UK fund hopes to return 15% a year. This sounds wildly optimistic to me, given that the up-front capital requirements are going to be extremely steep. The fund will probably also be required to buy and sell cars rather frequently in order to sustain investor expectations.

*Which was, it should be noted, a replica of the real deal.

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