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A Rough Ride in Collectible Cars

From WSJ.com

NOVEMBER 25, 2008
A Rough Ride in Collectible Cars


For some, the first sign of trouble was a Daytona Spyder.

When one of these rare early-1970s Ferrari sports cars turns up at an auction, high-end collectors typically bid aggressively, even fiercely, to acquire it. But at a recent sale in California, one Spyder failed to fetch the minimum bid.

In recent years, the vintage car market has soared, led by the priciest European models. But now, as the economy worsens to the point where even the wealthiest collectors feel pinched, demand for million-dollar sports cars is starting to skid.

Dealers, auction-company executives and others in the business acknowledge the downturn but say that, until recently, it has mainly affected the low end of the market: cars costing up to about $100,000, many of them American models. And while some insist that Ferraris, Mercedes-Benzes and Alfa Romeos are still holding their value, an increasing number of sellers are looking to unload their cars in a hurry to raise cash after losing their jobs, or a large chunk of their wealth in the stock-market plunge, say car auctioneers and others.

Recently, two of Michael Sheehan's clients came to him looking to sell their Ferraris in a hurry -- an unusual request. "They needed cash now," says Mr. Sheehan, a longtime Ferrari broker in Newport Beach, Calif. The cars, a $110,000 1982 Berlinetta Boxer and a $950,000 1972 Daytona Spyder, wound up selling for about 25% less than they would have sold for just a few months ago.

Both sellers themselves were in hammered industries: One was a home builder from Chicago, and the other a former Lehman Bros. executive from New York.

Mr. Sheehan says he and others saw it as a bad omen when the Daytona Spyder failed to sell during an annual weekend of car shows, auctions and racing events on California's Monterey Peninsula in August. The event attracts some of the most sought-after cars and well-to-do collectors, and sales this year included several record prices.

Surprisingly, though, there were four Daytona Spyders -- which are sleek, shapely two-seat convertibles -- up for sale this year by three auction companies. That's considered too many for a car of which only about 120 were made. While one sold for about $1.5 million, two others sold for between $1 million and $1.1 million. The fourth failed to sell because bids fell short of the reserve price.

"Monterey was the swan song," Mr. Sheehan says. "Since then the Ferrari market has fallen 20% to 30%."

There were other signs of trouble at the summer auto auctions. Mike Regalia was at an auction in Pebble Beach, Calif., in August when bidding began for a Porsche that once belonged to actor Steve McQueen. The auction house's estimate was $125,000 to $175,000, though Mr. Regalia, a Sun Valley, Calif., collector who also restores vintage cars, says he thought it would fetch at least $200,000. After all, collectors have paid outlandish sums recently for the late actor's property.

Bidding on the Porsche slowed just above $100,000.

"I realized that the car wasn't going to get anywhere near the number I expected," he says. So he wound up bidding $125,000 and taking the car home. "I hadn't planned on bidding, but I kept thinking, 'These people must be asleep,' " says Mr. Regalia.

Or maybe they just ran out of money. Amid the broad economic deterioration of recent months, spending on extravagances like antique cars has slowed. In many cases, people can no longer afford even to keep their collections, says David Gooding, president of Gooding & Co., a Los Angeles car auction house.

In the past year, many collectors who used home-equity loans or other credit to buy the vintage convertible or muscle car of their dreams have had to sell as the housing and credit markets have declined. The same factors have kept new collectors from entering the market. As a result, many staple collector cars like 1957 Chevrolets, 1940 Fords and 1960s Pontiac GTOs are selling for half what they commanded two or three years ago.

According to industry tracker CNW Research, long-established classic cars are also suffering. The price of a 1934 Packard Touring is down 17% on average, compared with two years ago. The 1957 Ford Thunderbird is down 15%, and the 1940 Ford DeLuxe Coupe is down 40%.

Market watchers are bracing themselves for the next big round of high-end auto auctions in Scottsdale, Ariz., in January -- long a collective barometer of the market's condition. Some fear that these auctions may disappoint, much like this month's New York contemporary-art sales by the Sotheby's and Christie's auction houses. The Sotheby's sale totaled $125 million, well below the low estimate. The Christie's sale brought in $113.6 million, or about half the low estimate. At both auctions, about a third of the lots failed to sell.

For some collectors, the downturn could be a good time to amass a long-coveted vehicle or two -- not just because prices are often lower, but because cars that weren't for sale before are suddenly available. John McCue of Half Moon Bay, Calif., bought a 1958 Mercury Park Lane last summer for $39,000. The 61-year-old retired software executive says it probably cost him about 5% less than the car's value a year earlier. But since he has pursued the car for years, he knows the former owner wouldn't have sold it then.

"There are those cars that you think will never be for sale, the ones the owners will take to their graves," he says. "Well, now a lot of those cars are changing hands."

While many in the collecting business say there will always be enough wealthy people who want vintage cars, others fear the market could be headed for a repeat of its last crash in 1989, when speculators who had no particular interest in vintage cars drove a steep, if fleeting, run-up in prices. Today, more of the buyers are car lovers, but speculation underpins their motives as well.

"The love of cars never outweighs the love of money," Mr. Gooding says.


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