In the Q1 2020 supercar market update (Supercar Market Update Q 1 2020) I summarized the situation as:
In summary, right now we have a market that is basically frozen. The situation isn’t likely to change for at least another month or two, and perhaps much longer. The Coronavirus is causing a global tragedy and economic meltdown unlike any we have experienced in our lifetimes. Once things start to normalize, and full normalization is unlikely until a vaccine is available, the impact of the Coronavirus on the Supercar market will be immense and play out over a number of years. Not all manufacturers will survive, and many of those that do will have much more modest ambitions. There will be a few manufacturers which had the foresight to reduce production and build a financial cushion that come out ahead.
So where are we three months later if we look at the manufacturers, future limited-edition supercars, and both the main and high end of the supercar market? Starting with manufacturers, all have cut volumes through both Covid-19 driven manufacturing plant closures and planned voluntary reductions. While Ferrari, Lamborghini, and Porsche all look to be in fairly solid positions financially, McLaren has had to rely on its deep pocketed controlling shareholder to arrange a loan to solve a major liquidity shortfall. This is on top of the £291 mil. injected into the business in March which has already been spent. McLaren should be able to weather the balance of the year now, with both the Formula 1 season starting this weekend and car sales resuming. Aston has had an even more exciting quarter. Aston Martin finally parted ways with Andy Palmer, the CEO for the past several years, installed a new regime headed by Lawrence Stroll, and recently announced a £152 million new share float at a price of 50 pence per share, which is 2.6% of Aston’s IPO opening price back in Oct 2018. How this chapter of the Aston Martin story ends now all depends on the DBX, a $200k luxury SUV launched into the worst economic situation this century. I have no information on how Pagani or Koenigsegg are doing but I suspect both are fine. I believe Scuderia Cameron Glickenhaus (SCG) is in good shape financially and is nearing completion on its new factory in Danbury, CT.
Moving onto the supercars, things are anything but normal. What exactly is happening in the market really depends on who you are talking to and what segment you are talking about. Actual data is in very short supply but there is an ocean of conflicting opinions that you can spend days trying to paddle through. I recently received a Sports Car Market Magazine Supplement on the State of the Market. It’s basically 50 pages worth of short statements from the heads of various auction houses and major classic car dealerships stating the obvious while doing an outstanding job of making sure no actual insights on what is really going on in the market are offered. The vacuousness of the piece overall is insightful as I believe a lot of it is driven by the fact that a lot of the “market experts” really have no idea what’s going on and are trying very hard not to expose that fact. Out of the 20 odd individuals interviewed for the SCM supplement, the only 2 who offered what I would call any real insights were the only ones not directly employed in the supercar or classic car market. Miles Collier, a Philanthropist & Investor, referenced an article in The Key Magazine which stated that almost all of the top 100 car collectors worldwide are now over the age of 70. This is also the demographic most heavily impacted by Covid-19. This group owns over 3,500 cars with a value of roughly $8 bil. To put this in perspective, $8 bil. represents roughly 25 years of Monterey Car Week Sales. It’s highly likely that many of these collections get downsized or liquidated in the coming years. As tastes change with the generations, values will shift significantly. The younger generations are more interested in the cars they grew up with on their bedroom walls. A 70-year old’s cherished Ferrari 275 GTB/4 means a lot less to a 50-year-old than a Ferrari F40 probably does. The second insight from the SCM supplement was provided by Bill Warner, Chairman of the Amelia Island Concours. Bill indicated that he believes cars in $50k-200k range should hold value better those north of $200k. He also referenced a few cars that he believes will or will not be good buys. Of this list, the two that first come to mind are BMW M1s, which Bill believe’s should be in demand, and 04-06 Ford GTs will likely not hold value as there are too many low mileage cars sitting around.
As I mentioned earlier, actual data on what’s going on is in very short supply. There have only been a few online auctions in the last several months and if I had to summarize the results it would be that the downward trend that started in 2019 has simply continued at about the same rate. The cars that have sold did so at about 10% below the low estimate. Those cars that were not bid to around 90% of the low estimate were generally “no sales” so we are not seeing despite sellers taking whatever they can get, yet. Where I have seen some major bargains is on the online only auction site Bring a Trailer in the US and Collecting Cars in the UK. However, these still seem to be more the exception than the rule. The few dealerships I have talked to are all saying that business is surprisingly good, and they are not having to do any unusual discounting to move cars.
So, how does this square with record levels of unemployment and economies that are now officially in recession? When you stand back and look at both the actions governments have taken and the profile of the average supercar buyer, it does square. Governments have pumped an enormous amount of cheap money into their economies while providing free cash directly to their citizens. All of this has served to postpone the pain of significant parts of economy shutting down for an extended period. Property prices haven’t crashed, and the global stock markets have recovered from an initial dramatic dip. The Dow Jones Industrial Average is basically at the same level it was at a year ago. All in the net financial impact of all this on the average supercar buyer has been fairly neutral and many are not feeling a significant decline in their overall net wealth. With professional sports & travel basically shut down and vacations to exotic destinations off the agenda for the foreseeable future, many of those that can are buying supercars now as they are one of the few pleasurable escapes available. The key word in the last sentence is “now”. With the future very uncertain, six figure deposits with struggling manufacturers on seven figure cars that will be delivered a few years’ down the road now is far less appealing than it was just 12 months ago. Hence the number of depositors who have cancelled orders on future limited edition hypercars (Hypercars – Who Lives, Who Dies). At this point it would appear that the viability of both the Pininfaria Battista and Aston Martin Valhalla are now highly questionable and while the McLaren Elva will make it to production, a further cut in production numbers from the current declared 249 is highly likely.
While most of above refers to the $50k – $300k end of the supercar market, and it has been an island of apparent normalcy in a highly abnormal time, the further you go up in value in the supercar market, the more the market looks to be a frost bitten. While some deals are getting done, a lot of the movement is being driven by exchanges with a bit of cash to balance out the deals. Sellers are holding hoping things stabilize and buyers are sitting back waiting for prices to drop. However, the elephant in the room is that $8 bil. worth of collector’s cars mostly owned by individuals over 70 years old. When these collections start to get liquidated, supply is going to swamp demand and today’s $1.5 mil. Ferrari 250 GT/L Lusso might easy be tomorrow’s $800k Lusso in just the same way we have seen Ferrari 365 GTB/4 Daytona’s go from $800k to $400k in the last several years.
If things in the main part of the supercar market are largely normal today, that is likely to change as stimulus payments dry up, cheap money disappears, and the economic impact of Covid-19 hits a larger part of society. In many markets a high percentage of new supercars are leased or financed. With economies now officially in recession, a large number of these cars which are 1-3 years old are going to find their way back onto the market in the next 6-18 months. Supply will quickly swamp demand and prices will drop. This will put enormous pressure both on new supercar prices and accelerate depreciation on older used supercars in the 3-10 year age bracket. The large increase in supercar production in the last decade via the entry of new manufacturers (McLaren) and significant increases in volume from the establish brands (Ferrari & Lamborghini) has created what will be a very toxic situation when it comes to residual values until the oversupply is removed from the market which will likely take several years.
In summary, right now we have a supercar market that is enjoying a bit of an “Indian Summer”. The situation isn’t likely to change for at least another month or two, but after then, all bets are off. Not all manufacturers will survive, and many of those that do will certainly have much more modest ambitions. The Coronavirus is causing a global tragedy and economic meltdown unlike any we have experienced in our lifetimes. Once things normalize, and full normalization is unlikely until a vaccine is available, the impact of the Coronavirus on across the supercar market will be immense and play out over a number of years. Add in a generational shift in both major collectors with changing tastes and the potential turmoil at the higher end of the market is immense.
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