Market and auctions

Market: a reasoned analysis on Bloomberg’s consideration

Bloomberg recently published an interesting article written by Hannah Elliott about the historic car market during coronavirus.

Photo credit: Aston Martin, RM Sotheby’s, Wheelsage

According to Bloomberg, the global pandemic has favoured the private sales market. It is a very difficult market to monitor because it eludes all forms of control, which certainly makes sense these days, and can give rise to some incredible deals: the record-breaking sales reported to Bloomberg by Gooding are therefore credible and, to corroborate them, we conducted a similar analysis through several large international traders. It is immediately apparent that in these calm waters of a market without the big auctions and with previously unimaginable disturbances, the true experts move with ease and considerable discretion.

The Bugatti Atlantic is one of the icons of car collections: cars of this type are resilient to the effects of crises

Yet what has happened to the broader market of passion? From our analysis, the cross-segment market that reacted to the new situation by introducing online auctions provides some very interesting data: the on-line auction of Palm Beach organized by RM managed to sell 67% of the cars on offer, bringing in a total in excess of $13.6m and giving many buyers the opportunity to take home some very interesting deals within each price point and category: 72% of the cars sold went for less than their initial estimates and this means that today’s market is considerably more elastic than it was before. As if confirming that the top models continue to retain their attractive power, the fact that, on average, 75% of the top lots were sold is an irrefutable symbol of the state of the market, especially as we are talking about cars worth almost a million dollars sold online. What happens when we compare this to the situation last year when people were in the room? Without question, both the percentage of total sales (74%) and turnover ($23m) have fallen, yet the drop cannot be simply attributed to the online formula.

These moments, favoured by the online auction system, can be a great opportunity for fans: this Lamborghini Diablo, which was once owned by the famous driver Mario Andretti, was sold for just $68,200 at the RM auction in Palm Beach

In such a context, one can be either optimistic or pessimistic. If we want to see things in a positive light, or rather from the point of view of those who believe the prices will not be affected, indeed they could even take advantage of it, the evidence is clear:

  • alternative investments: on 12th February the Dow Jones closed at 29,551.42 points, after just a month, on 23rdMarch it dropped over 37%, falling below 18,600 points (18,591.93) and going back to where it was in November 2016. Since the 23rd the Dow has risen but it’s still prone to strong volatility, making the financial market almost “neurotic” in character. In a scenario like this, many people wonder whether it’s worth “parking” their liquidity in safe-haven assets that may even be pleasant to own and use, the so-called “passion assets”. Cars are a typical example of this investment. Rationalized optimism.
When there are sharp falls in share prices, opportunities for stores of value open up. Classic cars rightly belong to this category
  • revenge spending: this story was published in most of the world’s newspapers and is a small sign of hope for the economy. When the lockdown in China ended, “frivolous” expenses skyrocketed, almost out of revenge for the lockdown, in celebration of a newfound freedom. During the first opening weekend, the Hermes boutique in Canton generated the highest turnover ever for a store in China. Other fashion houses recorded similar results. The hope is that this phenomenon will be replicated in Europe and the United States. Cars, moreover, already possess that aura of freedom (a bit like Easy Rider and motorcycles) so why not chase away the ghost of the virus by buying a convertible and driving around for a whole weekend?
The desire to rid ourselves of nightmares, like the current pandemic, leads to an irrational behaviour called revenge spending. This was confirmed by the all-time sales record at Hermes in China at the end of the lockdown

If on the one hand, the signs of hope are strong and encouraging, the “Cassandras” on the other who preach lightning and storms for the market count on other reasoning:

 

  • caution: the collectible car market is significantly below the value it commanded a few years ago. The economy has been negatively impacted by the fact that many companies have been closed for weeks, resulting in zero sales, and it is by no means certain that we will see revenge spending at the end of this period. On the contrary, prudence could even limit “unnecessary” purchases. Moreover, as a precaution, almost all the companies listed on the stock exchange have suspended the liquidation of dividends with repercussions on family budgets. So, in this moment of uncertainty, hiding one’s money under the mattress is certainly tempting.
  • modesty: Alex Finigan of Paul Russell Co., one of the world’s most celebrated restorers, recently told Sports Car Market: “You don’t want to be buying a $7m car when you’re laying off 2,000 employees”. Spending money in this moment of uncertainty could send the wrong message to various stakeholders, not so much “rest assured, the company is solid” but rather that while employees have to tighten their belts, the entrepreneur is spending wildly. An understandable prudence which, moreover, could support the theory that it’s a good moment for private and secret sales, particularly when they carry with them significant prices.

 

Who is right? Obviously it’s hard to say right now, you’d need a crystal ball, but we think we can safely say that sharing the strengths of both arguments is food for thought for those who follow us.