Here's Why You Should Invest in Classic Cars
Property. Bonds. Equities. Art. These are four of the anchor asset classes your financial advisor will present as pillars of diversification to ensure your money works harder for you than you did earning it.
But there is a fifth, amazingly buoyant, asset class that has seen spectacular capital appreciation of nearly 400% in the past decade – classic cars. And Mercedes-Benz is the brand with arguably more collectable classics than any other.
Two years ago, a 1958 220 S Coupé sold for R1.67 million on auction in Johannesburg. What's driving these sort of prices though? It's simple. South African classic Mercedes-Benz owners are in the envious position of possessing cars most desirable to the world's most discerning collectors.
Why? Local Mercedes-Benz classics are almost exclusively right-hand drive – and the world's most robust demand market for right-hand drive cars remains the UK. Add the negotiating agility of being on the same time zone (unlike Australian owners who are affected by time lag), and a currency that yo-yos over time against the pound, and it's hardly surprising that many vintage Mzansi Mercedes-Benz vehicles are exported to the UK.
Beyond the right-hand drive build configuration and purchasing power of pound versus rand, there's another financial fundamental driving demand for South African classics – and by implication, price. This is the curious relationship between British interest rates and taxation.
The Bank of England has managed to keep interest rates near zero – which is great if you're keen on buying a home or establishing a business, but less so for those with large fixed-income investments. Best invest your cash somewhere else. But why a classic car? Because the gains made trading them in the UK are tax-free. You pocket the profit without having to share any with the Queen's coffers.
That said, are we nearing the ceiling for classic car prices? The market's run very hard in the past three years, but South Africa's core advantages – mint right-hand drive cars and a soft currency – aren't going to alter soon. The more vexing question concerns the tension between speculators and true enthusiasts in the market.
Enthusiasts are unlikely to sell for pure financial reason: cashing out to take profit. They are almost guaranteed to immediately reinvest in another classic Mercedes-Benz, for the intrinsic joy of owning and driving one. Speculators are likelier to panic and sell off the moment prices start stalling or reversing. The old adage of taking a long view in the market holds true for classic Mercedes-Benz much as it does for any other asset class.