Credit Crunch Hits Muscle Cars - WSJ

[ProVette]

http://online.wsj.com/public/article_print/SB120361428163083233.html

Credit Crunch Hits
Classic Car Prices

Run-Up in Values of Hot Rods, Muscle Cars
Loses Steam as Funding Source Dries Up
By DAN CARNEY
Special to THE WALL STREET JOURNAL
March 11, 2008

The fallout from the credit crunch and housing market turmoil has reached the garages of classic car collectors. The value of some vehicles has declined by a third from two years ago.
Over the last decade, rising home values helped many Baby Boomers recapture their youth by buying American muscle cars and hot rods that were popular from the late '50s to the early '70s.
"Home equity was the ATM out of which a lot of people were withdrawing money to have fun," says McKeel Hagerty, CEO of Hagerty Insurance Agency, which specializes in classic cars. "What the credit crunch has affected is the bottom part of the market."
https://static1.pt-content.com/images/pt/2008/03/OBBD143_auclas_20080310123039-1.jpgBarrett-Jackson This customized 1957 Chevrolet Bel Air sold for $63,000 at the January auction held by Barrett-Jackson.
Ford Mustangs, Chevrolet Bel Airs and similar mass-market vehicles occupy what the collector-car industry calls the "enthusiast car" segment, with typical auction prices between $30,000 and $50,000. These cars are typically bought by casual owners rather than serious collectors.
"Many of these cars were built or bought using home equity loans," says Art Spinella, president of CNW Research, a Bandon, Ore. market analysis company.
With home-equity loans harder to come by, and potential buyers feeling less house-rich, prices have come down from their peaks.
"You can get a pretty good hot rod now for two-thirds what they cost two years ago," says Mr. Spinella. "They were getting $45,000 a year and a half ago, but you can buy all of them you want now for $30,000 -- really good ones."
THE CAR THAT GOT AWAY

https://static1.pt-content.com/images/pt/2008/03/OBBD191_aucarh_20080310172348-1.jpg (http://online.wsj.com/article/SB120000007479681853.html?mod=Autos)1 Scouring junkyards, hiring detectives and calling ex-girlfriends. The lengths men are going to find the cars they once loved (http://online.wsj.com/article/SB120000007479681853.html?mod=Autos)2.

The surge in demand in recent years helped push up prices for less-desirable four-door sedans or models with six-cylinder engines, but now they have returned to wallflower status.
"Many of the low-end Mustangs and Camaros aren't being lifted by the tide like they were," says Mr. Hagerty.
Still, the splashier, more expensive and more uncommon variants remain hot. A 1969 Shelby GT500, which is a customized version of a Ford Mustang, that was owned by racing legend Carroll Shelby recently sold for $675,000.
"Big-block [V8] models, those are going to have strong buyers," says Mr. Hagerty.
Another factor hurting hot rod values: the people who pined for them during their youth are getting older and less interested.
"As the population ages, the kind of cars they are interested in grows up, as well," Mr. Spinella says. "They reflect … the kind of cars that were popular when they were kids. The Ford Model As and Model Ts that were popular [among collectors] in the '60s are not as popular now."
The stripped-down hot rods that had their heyday in the 1950s will likely be the next era to fall out of favor with collectors.
https://static1.pt-content.com/images/pt/2008/03/OBBD154_auclas_20080310133257-1.jpgBarrett-Jackson Lot 1287 crosses the block at the Barrett-Jackson auction in January. This 1969 Shelby GT500 was owned by Carroll Shelby himself and sold for $675,000.
Despite the troubles at the lower end, trade in rare, hand built and ultra-expensive classics continues unabated. To this point, the high-end has been largely insulated from the tightening of the credit market because buyers typically don't need financial help buying even million-dollar vehicles.
"Our business, the blue chip classic car business, continues to grow, and I haven't seen a drop in the segment of the market we participate in," says Mark Hyman, president of Hyman Limited Classic Cars based in St. Louis which sells rare collector and sports cars.
Still the decline in values for hot rods and muscle cars might not be bad for the collector car market overall since, much like the housing market, there was a bubble fostered by easy money and speculative buying.

"Those segments went way up for no reason and have come down for good reason" says Mr. Hyman. "Those cars were bought without understanding what they were buying and why they were buying it."
At the Barrett-Jackson car auction in January, organizers actually expanded the number of "enthusiast"-level cars," explained president Steve Davis because they draw new participants into the hobby.
"We had a tremendous influx of new bidders," he says.
Also, there are more truly wealthy people who are getting into car collecting for the first time want to test the waters through less expensive acquisitions.
"Some of our top customers have started buying user-friendly affordable entry-level cars," Mr. Davis says. "If someone very successful has never played the stock market before, they are not going to jump in and buy 50,000 shares of some speculative stock the first time."
CNW Research's Mr. Spinella, who tracks which kinds of vehicles are being restored at specialty mechanics and auto body shops, says that station wagons may be the next hot item in the low-end collector car market.
"Wagons are snapped up as quickly as they get out there," he says.

[John McIntire]

Interesting.

[Nine Ball]

If anyone reading this has a $45K 1st gen Camaro for sale at $30K, let me know. I have my own funding! lol

I'm actually glad to see the upper price range musclecars come down a bit. It was bound to happen, people were paying waaaay too much for these cars. I feel cars in the $150K and under price range won't be affected as much.

[Fesler built]

What most people dont understand is the people buying cars today are buying what they could not afford when they were younger. When you talk about over priced cars at Barrett Jackson well that is because the majority of people that go there to buy a car have no idea of what they are looking at. Everything that PT guys do here was very strong at BJ this year.

I have a booth every year at BJ and help alot of clients pick what cars to buy and have noticed that the style cars we all build here are staying very high. There were some very good deals from the 50s but the 60s held very strong again. Most of the cars that were pulling over $85,000-125,000 could be built cheaper as there was nothing speacial about them. Corvetts and Camaros did very well and Mustangs fell a little but let me tell you I had a client that wanted a 60s Vette and we bid on everyone of them and did not win one as they were all up over $100K and we can build a better one for the money.

There were three cars from one builder a 1955-56-57 and all of them cost over $200K if you were to have them built and all of them did way under that, we looked these cars over inside and out and whoever bought them got a killer deal. Than you look at some of the Camaro's and Vettes and the prices were just stupid high, now as a builder I am not going to complain but lets be fair to people, if you are going to pay that kind of money for something you should get your monies worth.

The biggest problem is people buy stuff with out knowing what they are getting, one Vette had everything wrong for parts (nothing matched:here!: ) being sold as matched but was a beauitful car and it pulled something around $120K:hand: when it should have pulled $65K - $70K so for the buyer its bad for the seller its great.

People that want these cars will keep paying for them. I know a ton of poeple that will buy a 600SL Mercedes and drive it for one year and sell it for $40K less than what they bought it for. To them its no different on spending over $100K to build a PT car and sell it for $60K so these are the deals you need to watch for. BJ is good and bad for all of us because they set prices for cars and keep what we do strong.

[Vegas69]

Supply and Demand. They aren't making them anymore, and how many quality pro-touring cars are for sale at any given moment? Some of the Barret Jackson is, my **** is bigger than yours. That isn't going to happen on most cars anyway. If you have 80k in it and you sell it for 65k what was the experience and fun you had worth? Thes cars are hobbies and past times, not a 401k.

[MrQuick]

If a guy ain't got money theres no demand. High end cars (BMW,Porsche etc) are still selling. We know where the money is.

I'll say it again, its agreat time to buy.

[John McIntire]

I agree with Vegas69, I do it for me, I don't do things and mod my car thinking of resale value.

[bigvegan]

I think the thing that will keep PT cars high in value, is that they are the "classic" cars people in their 50s to their 20s think about buying, at least for those who want the cool cars they saw when they were kids.

The deuce coupes and the tri-fives are awesome, but their major fan base is in their 60s or 70s now, so while they'll always have a following, they're probably going to be more of a niche market.

The pro-touring market, on the other hand, benefits fairly significantly from the smog rules, as from the mid-70s on, there weren't very many cool cars being built, so a lot of the people born from the 50s to the 80s all view the '65-'72 era as THE desirable period.

I still think we're going to see a pretty solid correction though. If the Federal Reserve has been wetting itself in trying to keep our banking system from collapsing the past couple of weeks, it's going to be even worse when the Alt-A and Option ARM resets peak over the next couple of years.

Some folks have enough money where this is a moot point, but there are a lot of owners of nice vehicles who bought them with a home equity line of credit, and if you get upside down on your mortgage, the shiny weekend car is going to be the first thing to go.

(I hope nobody on this site is in that situation, but living here in L.A., the hub of short-sightedness and instant gratification, people are not very good at keepng their desires in line with their pocketbooks.)

[70bird]

Some folks have enough money where this is a moot point, but there are a lot of owners of nice vehicles who bought them with a home equity line of credit, and if you get upside down on your mortgage, the shiny weekend car is going to be the first thing to go.

(I hope nobody on this site is in that situation, but living here in L.A., the hub of short-sightedness and instant gratification, people are not very good at keepng their desires in line with their pocketbooks.)
So true!
I believe the rise in muscle/collector car pricing over the past years is a direct result of people having access to the equity in their homes.
Now that real estate values are dropping and people are finding themselves upside down on their mortgages, I think we will see a flood of those "shiny weekend toys" coming up for sale for pennies on the dollar.

My brother-in-law was in the mortgage business during this "equity feeding frenzy" time, and had clients that would re-fi their homes and roll all their debt into the new loan, take out some cash or get an equity line of credit. Many would be back within a year to do it again with new debt, and thought that the appreciation of their home was endless. Boy, are those folks in a world of hurt now.

[Vegas69]

Know all about that.....I talk to three to four people a week in that situation. There is no doubt the home equity revolution will affect values of most cars. My point was that the supply of a 40k pro touring car and 100k car are polar opposites and so is the buyer. The home equity revolution is coming back at least here. Our Real Estate market is catching fire again. Every offer I have written this year has been in a multiple offer situation. The banks have dropped there prices to 3-5 year ago level. It makes since to buy as a homeowner and investor once again!

[jeff s]

Typical mainstream media reporting on stuff that's old news. And getting the cause mostly wrong IMO. I don't have any customers that take out loans, home equity or other, to buy classic cars.

[69Pony]

A home equity loan bought and fixed up my Mach1 but I only have 1 year left on it so I'm feeling ok about it. Plus I have over 50% equity in my home. But I do agree that there are some people feeling the pinch. Several buddies are staring at lost hours, interest only loans coming due and divorce in the face. All say the car will be the 1st to go which is doubly tough right now with prices down.

Great time to buy almost anything right now if you have the "extra" money. I got a quote last year for an oversized 2+ car garage as a separate building. Covenants require it to look like the house so with a brick exterior, electric, heat/AC, storage above, etc.... it was going to cost 60k. Guy called back and offered to build it for 48k.

[vp23271]

Some folks have enough money where this is a moot point, but there are a lot of owners of nice vehicles who bought them with a home equity line of credit, and if you get upside down on your mortgage, the shiny weekend car is going to be the first thing to go.

(I hope nobody on this site is in that situation, but living here in L.A., the hub of short-sightedness and instant gratification, people are not very good at keepng their desires in line with their pocketbooks.)

I sold my house in LA late last year and have been shopping for a new home in Huntington Beach with a 3 car garage. I am in no rush to buy as I watch prices inch their way down.

During my search over the last 4 months, I have met 2 home owners with for sale signs on their huge almost new boats parked out front attached to their Ford F350 4x4 lifted trucks with all the custom bling you can imagine. One of the home owners was a mortgage broker crying out loud! He actually seemed like a nice friendly family guy, but his house was in foreclosure and he was trying to sell EVERYTHING! Some people never thought the party was gonna end and over extended their budgets. I know people who took out an equity line and spent all of it and then refi'd again to pull out more money and spent it all again! It's crazy the way some people think/spend and I can see some people being forced to sell their Classic Cars and other toys!

[Rhino]

"Home equity was the ATM out of which a lot of people were withdrawing money to have fun,"

Were people realistically doing this? Pulling money out of one of your single biggest asset and throwing it down on a toy? The american public still surprises me to this day. :hand:



I'm actually glad to see the upper price range musclecars come down a bit.

100% agreement. When speculators get in the car market waiting for values to go up it does nothing but make our hobby more expensive.

[shizzy]

Were people realistically doing this? Pulling money out of one of your single biggest asset and throwing it down on a toy? The american public still surprises me to this day. :hand:


100% agreement. When speculators get in the car market waiting for values to go up it does nothing but make our hobby more expensive.

a friend of mine did that to buy a new motorcycle. spent it on a motorcycle instead of a new furnace, roof, windows, siding, etc... :slap:

[jknight16]

The average adult in this country does not seem to grasp the concept that you should never move equity from a (typically) appreciable asset (a home) to one that is depreciating (i.e. motorcycles/cars/sandrails etc)

I'll admit, this hobby is the primary driver of my financial indiscretions, but I would never do that!!!

[JEFFTATE]

Thinks work in cycles.
What goes up must come down.
The market is going to have ups and downs.

[69Pony]

I guess it really depends on the circumstances. For me a Home Equity was a no brainer.

Good paying job - check
Home with 65% equity - check
No debt other than my mortgage - check
6% tax-free bond investments - check
5.25% home equity loan - check

I can swing the Home Equity payments w/o a problem and my other investments are higher returns that the loan so why would I pull from there? So why not take out some equity and get a tax write off the boot? Now if my house needed work or I had outstanding debt to pay down then you all are right but for me it was the best way to get a lump sum to buy my car.

Now maybe you all have an extra 50K in the mattress to buy a toy - if so good for you but most do not. I made sure I could afford the price of the loan, it was a short period of time (5 years) and I was not planning on moving and the house is in great shape.

All depends on fiscal restraint and sticking to the "plan". I did want a new Roush engine but was not going to dive into the bonds to pay for it - that would be stupid. Though I fear my bonds are going to be called soon. 6 and 6.25% are sweet numbers these days.

[got_hp?]

Were people realistically doing this? Pulling money out of one of your single biggest asset and throwing it down on a toy? The american public still surprises me to this day. :hand:




I can sleep in my car, but i can't race with my house. :lmao:

[BonzoHansen]

All I know is nice 3rd gen Camaros are coming on fast...and the guys that wanted them in high school are now in their 30s and have more money now....

[Vegas69]

You can look at it at least two ways. You live once, and you can't take it with you. There is no guarantee you will live to see tomorrow. If blowing all your money on a kick ass toy makes you happy, so be it. You can suffer the consequences.

[Rhino]

I can sleep in my car, but i can't race with my house. :lmao:

Very true! :rotfl:

[vintageracer]

Fox body Mustangs and Fox Body Saleen Mustangs. Try to find a good one now because you will pay dearly for them in the future. Good ones are already hard to find. The guys that dreamed of these cars when they were new are now 30-40 years of age. The perfect age to once again want to crack in the back seat of their dream car. Since many of these cars are still under $10K, the dream is still VERY affordable!

As a point of interest. Steve Saleen built about 2,400 total Fox body Saleen Mustangs between 1984 and 1993. Carol Shelby built about 2,400 Gt350's during the 1966 model year alone. Does this mean that Saleens will be like early Shelby Mustangs in value and desireability? NO it does NOT!

But you never know????

[Texas Hotrod]

I save my "spare" money to buy parts on a weekly/monthly basis and I have purchased several project cars over the years using the same concept. I jumped on a deal for a clean Corvette many years ago, so I took out a simple personal loan at my local bank. No collateral w/o any money down, I got the money with my signature. I knew what I could afford, had the payments set for 2X the time allowed and didn't have anything to worry about. I managed my funds, paid 2X the scheduled payments, and had it paid off in no time. A loan for an automobile would have created many hassles, a personal loan was simple.

We work/live/pay our expenses on a weekly basis, just like everyone else. I operate my shop the same way. The work I produce for a week pays the bills for that week. Weeks add up to months and months add up to years. After 15 years I'm closer to having the shop and equipment paid off. So don't get the idea that I'm making big bucks and have a lot stashed away. I work my a$$ off for what I have, just like everyone else.

There is no way in hell that I would ever get money for a toy, at the expense of my house. What the mortgage companies shaft people in interest alone makes me pissed off. What the average family ends up paying for our homes in the end is enough to pay for it twice to 2 1/2 times over, then add a 2nd mortgage on top of that. We pay extra each month just to stay ahead of the system, and after 12 years, it'll soon be ours. If people are stupid enough to get these "interest only loans", pay only the interest (and spend the rest) and come up screwed in the end, it's nobody else's fault except for their own. It's hard enough for the average person to manage money, but it doesn't take a genius to figure out when not to put the house in jeopardy. Interest alone can surely kill anyone.

Back to the car subject: I agree that the cars that people have here are an exception to the rule. I for one started out with a cheap project. I'll invest about $15/20K in the thing in the next several (many) years and will eventually have something valuable. Not that I'm looking at resale value, but I'll be able to get more out of it than what I have invested. Can I get my hundreds of hours worth of labor out of it? No, but I'm not expecting to. I plan to drive/race/enjoy the thing.
I'm starting out with a $2K project, not a $30/50K+ bondo wagon.

On the flip side: It's cool to refinance and swing the deal for a bad-assed ride. We need more of that on the streets. It's just not a good idea to risk the family's good fortune when budgets are stretched thin. There's always a better way to get it done.
I for one have learned from my mistakes.

[bigvegan]

Between the number built, the emissions equipment and the sub-200hp ratings of a lot of the V8s, I'd guess the Fox Body Mustangs are unlikely to be high dollar collector cars.

They and the 3rd gen camaros will continue to have a strong following, and nice examples may have some value, but the sheer numbers alone will keep them out of the stratosphere.

Of course, with gas getting close to $4 a gallon and the economy headed into the toilet, even super high-dollar collector cars may not be super high-dollar collector cars much longer.

On the plus side, if you've been smart with your money, there will be some outstanding buying opportunities between 2008-2012.

[Vegas69]

What I think most are missing here is......a real investor is not hurting today. They are out buying at the deep discounts available. The guys buying high end cars aren't worried about $4 gas and they sure as hell aren't using them to commute to work. The lower end cars will get hit the hardest without a doubt.