The Use Case Rule of Car Collecting

The Use Case Rule of Car Collecting

Earlier this year I met a wise experienced car connoisseur over zoom (it is 2020).  This gentleman has owned a number of cars that have also passed through our garage over the years (including a Ferrari F50, 16M, McLaren 675LT) along with at least one that I can only dream of (McLaren F1).  He introduced me to the “Use Case Rule” of car collecting. The essence of the rule is that every car in the collection has to have a clear unique use and role in your collection. The Use Case Rule is like many of the rules in our society, I had been cognisant of the concept, mostly followed it without ever realizing it, but never studied or vigorously applied it.  What I had vigorously applied to car collecting, was my well-developed “man math” skills.  While “man math” is an integral part of the car buying process, it’s just that, a onetime process that doesn’t get revisited once the purchase is made.  The Use Case Rule is one that is ongoing as it will continuously guide the development of your car collection.  One note on the Use Case Rule, it doesn’t apply to Car Art Collectors (see: The Tyranny of Low Mileage) for it to apply, “use” has to be a core element of the ownership experience. There are also a few iconic cars that in my opinion transcend the Rule, examples would be the McLaren F1, Ferrari 250 GTO, Ferrari 288 GTO, Ferrari F40, and the Ferrari F50.

A Few Past Examples of the “Use Case” in Action

The first time I really found myself on the wrong side of the Use Case Rule was about 8 years ago when we lived in the UK.  At the time, I had assembled a small collection of supercars that included a Ferrari F40, Ferrari F50, Mosler MT900S, Koenigsegg CCR, and a Jaguar XJR-15.  When you are an enthusiast who likes to use their cars regularly and on long road trips, when the most practical, useable, supercar you own is a Ferrari F40, there is something amiss.  Had I diligently applied the Use Case Rule to each of those five acquisitions, two likely would not have happened.  The F40 and F50 easily pass inspection under the Use Case Rule due to being icons.  The Mosler MT900S got under the bar as it was my track car but the Koenigsegg CCR and Jaguar XJR-15 should have been flagged as day trip only cars and the F50 already had this role locked up.  In the case of the Jaguar XJR-15 it had the additional restriction of being a car that Karen rode in once and never again.  She was not impressed at having to wear headphones to be able to hear herself think.  With the Koenigsegg CCR, it was a catch 22.  The CCR works best with the roof off, its dark and claustrophobic with it on.  The roof panel fits under the front clamshell which is also the only place to store any luggage.  Road trips require a bit of luggage so a long multiday trip in the CCR just wasn’t ever going to be in the cards for us.  What forced the issue was a weeklong road trip planned up to Scotland.  For this trip we really needed a RHD supercar that could carry a week’s worth of luggage and we would be happy spending multiple hours in every day.  So out went the Koenigsegg CCR and in came a Ferrari 430 Scuderia and a 612 Scaglietti.  The Mosler MT900S later departed when my travel schedule basically put an end to track days as its use case had then evaporated. 

 

A few more examples of the Use Case Rule being applied since without even realizing it were the Ferrari 599 GTB HGTE being traded in for the McLaren 720S Coupe, the 720S Coupe becoming a 720S Spider, and the McLaren P1’s departure.  The Ferrari 599 GTB HGTE just wasn’t being used, at the time we had little need for a long distance Grand Tourer so off it went for an alternative that we assumed would get more use.  The 720S Coupe fell to a similar “more use” fate when the 720S Spider came up as an option as Spiders always seem to get more usage in our garage over a similar coupe.  The McLaren P1 fell afoul of the “Use” part of the rule as it just wasn’t getting used as there was no where to really be able to take it out and enjoy its capabilities anywhere near where we lived at the time.  There was a not so small issue with a potential hybrid battery failure and a massive bill that also played a very key role in driving that decision.

Recent Applications of the “Use Case” Rule 

A few recent examples of the Use Case Rule proactively in action have come about on cars that I’ve given some consideration to acquiring in the last couple of years.  First on the list is a Ferrari 308 GTB.  Since owning one years ago, I’ve always had a soft spot for them.  When looking at 308 GTB through the lens of how and where it would get used given the other cars we currently have in the garage, it came up quite short.  Given the option of taking out the F40 or a 308 GTB on a Sunday morning for a drive, the 308 keys are likely to sit undisturbed.  Hence a 308 GTB is highly unlikely to ever rejoin the garage.  A slightly different situation came up on another set of cars that we formerly owned, and I’ve always wanted to reacquire, the Ferrari 430 Scuderia and the Ferrari Scuderia Spider 16M.  I’ve always considered the Scuderia the ultimate evolution of the line of V8 Ferraris dating back to the launch of the 348 in 1989.  The F1 gearbox in the Scuderia is last and best evolution of the technology.  It’s wonderful engaging to use and banging upshifts off under heavy acceleration is petrolhead catnip.  In an article I wrote several years ago (430 Scuderia vs. 16M) I indicated that my preference between the two was for the Scuderia:

 

Despite the strong preference for Spiders, in the case of the 430 Scuderia, I actually preferred the coupe.  The raw focused nature of the Scuderia concept just works better as a hard top.  With the 16M Spider, it feels like Ferrari tried a bit too hard to compensate for the structural challenges that arise when you cut the roof off a non-carbon fiber tub car.  The extra weight from both the soft top and chassis reinforcement impacts the nimbleness.  To compensate for the extra weight, it feels like Ferrari stiffened the suspension which has negatively impacted the subtleness in ride quality and handling which makes the coupe so brilliant.  On the 16M, it also seems that Ferrari has turned up the exhaust another few notches and, in this case, louder isn’t better.  Net net, with the 430 Scuderia Ferrari got the balance right, with the 16M, the challenges created by loping off the roof resulted in a subtlety different car that just misses where the coupe nails it. 

However, looking back now I might have been a bit unfair to the 16M as the environment it lived in during our ownership did nothing to flatter its abilities.  Bad cement roads covered in potholes are not an ideal environment for any supercar.  If we were to acquire another Scuderia, knowing our preference for open top motoring today the decision would be I the favor of the 16M.  It would simply get more usage. 

The final recent example of the Use Case Rule in action over the last few years is the Porsche Carrera GT.  A Carrera GT has been high on the “want” list for over a decade yet the acquisition of one just hasn’t happened.  We came very close once and I did think we had a deal in place at Porsche of Newport Beach (Our Porsche History) until suddenly we didn’t.  This year with the pandemic and focus on social distancing, a sailboat was a more appealing option (Beneteau Oceanis).  If I really dig down to the core reason though, given the other cars we have, a Carrera GT just hasn’t yet been able to pass the Use Case test.  On one end of our current garage, you have the Ferrari F40 and McLaren Senna which are as raw, involving, focused, as they come.  On the other end you have the Porsche 911 (997.2) GT3 RS which has the manual gearbox hard core Porsche box ticked.  We would have the same problem with the Carrera GT in terms of luggage as we had on the Koenigsegg CCR, and again similar to the CCR, the Carrera GT is not a car I would ever want to drive with the roof panels in place.  If got really creative on the Use Case, I could probably justify trading in the 911 GT3 RS for a Carrera GT, but even my “man math” skills can’t quite justify the incremental $500k it would require to make that happen in today’s market.

As a guiding principle to car collecting, the Use Case Rule, has to be one of the best I have run across.  It took a wise man to clearly articulate a concept I had been applying for years without truly knowing it.  Going forward, it is the gateway every car must first cross before getting a garage space and must continue to meet in order to keep its space.

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December 2020

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ICE, Hybrid, EV, Future Bans on Petrol Cars, & the Supercar

ICE, Hybrid, EV, Future Bans on Petrol Cars, & the Supercar

Harry Metcalfe recently posted a very interesting video on “Will the 2030 ban & dash to electric cars spell the end for classics in UK?” which prompted quite a bit of discussion around the dinner table a few nights ago.  Assuming that the UK’s position on banning the sale of all internal combustion engine (ICE) cars as of 2030 might travel across the Atlantic, especially with the new climate change sensitive incoming administration (vs. the prior’s focus on bringing coal back), there was a lot of concern around the future viability of the ICE cars that we own.  However, I believe the reality is closer to a modified version of Bill Gates’ quote “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten”. I would change 2 years to 10 in this case and change 10 years to 30.  I thought I would try to approach what this all really means for current and future supercars from a few different angles, on-going demand for petrol (i.e can we practically continue using current ICE supercars), legislated wishes running into economic reality, and what this all means for the next generations of supercars.

Putting supercars aside for a minute and looking at the situation across all automobiles, so far, the legislated move from petrol to electric is still quite regional with different goals, targets, and mandates in place depending on the country.  While the EU hasn’t yet announced an ICE ban (although a number of EU member states have targets in place), I would expect that the continued tightening of emission standards will effectively lead to one on similar timing with the UK.  Multiple other countries (Canada, China, India, Israel, etc) have set objectives to phase out the sale of ICE vehicles and with the incoming Biden administration I would expect the US to now follow the EU’s lead.  In all cases (exception Norway) the ban only applies to new cars so looking at the average age of cars on the road, (8 years in the UK and 12 in the US), it will take at least another decade for the normal turnover (6-7% per year in the UK and 5-6% in the US) of the fleet to significantly depress demand for petrol.  Hence the supply and demand for petrol will remain significant well into the 2040’s.  Currently in the US, 25% of cars on the road are 15 years of older and its around 20% in the UK.  Net net, it will be several decades before I will be concerned about finding fuel for any of the ICE cars that we currently own. Hopefully by that time more environmentally friendly biofuels will be widely available which further extend their lifecycle.

 

As of 2019, Electric Vehicle (EV) car sales were under 2% of the market in the EU, UK, and US.  The new car market is 32 million cars per year across all three geographies.  The investment needed to scale up EV manufacturing capacity by 50X in the next decade to meet the legislated goals is massive.  This doesn’t even take into account the increases in upstream demands for lithium and battery production. Is it possible?  Yes, but in a post Covid-19 world, financially the feasibility is questionable.  On top of purely being able to supply that number of new EV & batteries cars, the investment that both the public and private sector will be required to make in electrical generation and charging stations is massive.  In the UK, the investment just in charging stations is estimated at £16.7 billion (Electric vehicles and infrastructure – UK Parliament) with the EU and US being 5-6 times that figure.  At the end of the day my guess is that cash strapped post pandemic governments will push the timing back to smooth the investment needed over a longer period of time.  The easiest and probably most face-saving way of doing so is to extend the deadline on phasing out Hybrids by another 5-10 years. This would allow governments to say they are keeping their promises to eliminate ICE while lessening the demand on EV infrastructure.

All of this leaves what the supercar of the future will be in a rather interesting spot.  Recent comments by the Ferrari and McLaren CEOs highlighted how they see the future evolving:

 

Louis Camilleri, the just departed CEO of Ferrari, stated in Ferrari’s Q3 2020 earnings call, “I really don’t see Ferrari ever being at 100 percent EV, and certainly not in my lifetime will reach even 50 percent.”  

 

Mike Flewitt, the CEO of McLaren Automotive, made similar comments in an interview back in September.  He said, “electric vehicle (EV) technology isn’t yet ready for supercars but could be gradually phased in over the next 10 years.  Full EV, whilst it can work well with commuter cars and in some of the automotive segments, doesn’t really work in the supercar segment.  An EV drivetrain can’t yet deliver the same experience as an internal combustion engine. “We retain an internal combustion engine in combination with the electric system to provide the driving experience that the car is all about,” Flewitt said. 

 

The McLaren Automotive CEO also made the point on cost, “We have to look at the other side of the equation a little bit as well and one of the realities for the automotive business is that this move is an extraordinarily expensive move. We’ve just been through a period where all manufacturers have had very serious impacts on their financial position. So, their ability to afford to move at a quicker pace is going to be jeopardized in some way.”

 

Flewitt said McLaren is moving ahead with hybrid vehicle technology adding that the company sees it as the next logical step. “Hybridization offers a very good solution. We bring down our CO2 emissions very significantly.”

 

Which if I boil it all down, Ferrari & McLaren are on-board with the move to Hybrids, believe they can deliver Hybrid cars that meet a supercar’s emotional & engagement expectation, and view a move to 100% EV as being far in the future, if it happens at all.  Can this be achieved?  My guess is probably yes.  If governments can get the vast majority of new cars to be zero emission EVs, then giving an exception for high value, very low production, low usage niche products that thousands of jobs depend on is likely quite palatable.  Achieving this will require a sustained long term lobbying effort by the major supercar manufacturers but is critical to maintaining the essence of what makes a supercar super.

What I also find quite interesting is that neither CEO is really sold on the idea that an EV supercar can meet customer expectations in terms of the overall “thrill of driving”.  You can count me in this camp as well.  I recently posted a blog on Hybrids The Hybrids are Coming & I’m Not Excited which outlined my concerns on the move from ICE to Hybrid.  If I had concerns going from ICE to Hybrid, they pale in comparison to what the jump to full EV means for supercars.  Having driven a number of EVs, the experience has been soulless.  If a supercar is about enjoying the journey, an EV is simply an appliance to get you to a destination.  Spending time in an EV is like going to your in-laws for dinner, you will get feed but it not likely to be a rewarding experience.  While EV technology will most likely deliver better performance numbers than either ICE or Hybrid, the lack of sound, a gearbox, and drive by wire systems make for a very one-dimensional characterless experience.  While I do believe that many of my concerns on Hybrids can be overcome, and I’m very much looking forward to driving the Ferrari SF90 & McLaren Artura, I don’t see how it is possible on an EV.  However, I do believe there is a market for supercar EVs, it’s just a different subsegment of the target group.

Going back to the article on The Tyranny of Low Mileage, I divided the supercar market up into three basic groups:

 

Car Art Collectors: tend to be the ones that buy the ultra-low mileage supercars and then park them in climate-controlled garage display rooms from which they rarely, if ever emerge.  My very superficial understanding of this group is they basically view cars as pieces of art to be collected like other artistic objects.  I guess a $3 million 288 GTO is actually quite reasonable next to what it would cost to acquire a Picasso or Rembrandt.   I don’t see these people as petrolheads, they are art collectors. 

 Value Sensitive Supercar Enthusiast: tend to buy supercars, use them very selectively for a year or two, and then sell before the odometer reaches four digits.

Supercar Enthusiast Driver’s:  buy the cars to drive and enjoy and tend to be mileage agnostic.  I would like to believe we fall into the third group.

Of the three groups, an EV supercar or hypercar is a completely acceptable option for the Car Art Collectors.   On a car that is likely to rarely turn a wheel, the type of powertrain is irrelevant.  The second group may have some interest in an EV supercar but is likely to find Hybrids much more appealing as they do use their cars.  Its in the third and final group that the older ICE supercars will continued to be cherished and Hybrids accepted as the best new option available. 

For the manufacturers, with the possible exception of Ferrari, producing supercars based on three different technologies is likely not financially viable.  I would expect McLaren to focus on Hybrids going forward, especially given the profile of their customer base.  Aston Martin has a bit more flexibility as it is buying technology from Mercedes so a Hybrid, EV mix is likely. The smaller manufacturers, Koenigsegg and Pagani, will likely go EV, with SCG eventually moving to Hybrid.  The next Bugatti will definitely be an EV now that is under Rimac ownership.  Should the Pininfarina Battista and Lotus Evija get built, both will also be EVs.  For the supercar enthusiast, while the age of new ICE supercars is likely coming to an end shortly, it will be many decades before availability of petrol becomes a significant issue so we will be able to continue to enjoy our existing supercars.  By then it’s also likely that a much more environmentally friendly biofuel will be available which should further extend the usability window.  Hybrids have the potential to deliver the levels of engagement and performance today’s supercar enthusiast expects so the future is still bright. 

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December 2020

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The Low Mileage Tyrants

The Low Mileage Tyrants

A few weeks ago I wrote an article on The Tyranny of Low Mileage which discussed several different types of car collector/enthusiasts, their mindsets, and the impact this has on the supercar market.  The summary of that article is:

 

While I personally believe the fixation on mileage is a horrible thing and leads to both a distortion of the market and in many cases, owner’s (Value Sensitive Supercar Enthusiasts) usage decisions that detract from the overall enjoyment of a supercar, it is a free market, and everyone is entitled to their own opinions.  A car locked up in a private collection that never sees the light of day to me is no different from the caged lion in a zoo. Neither is where it should be and longer term it’s not good for either’s health.  While I do appreciate beautifully designed cars, it’s hard to enjoy, as EVO Magazine puts it so well, “the thrill of driving” while sitting in a garage.

 

This very much reflects my personal opinion and approach to supercar ownership.  As much as I like to drive our cars and tend to buy cars that urge you to drive them, there seems to be a select group of cars that are what I would call the Low Mileage Tyrants.  These models have the unique combination of being highly desirable, high value and yet at the same time the vast majority of their owners rarely, if ever, drive them as they believe mileage will devalue their asset.

Looking at auction results, the classifieds, and talking to fellow enthusiasts, there are a few low mileage “Tyrant” cars that repeatedly come up.  They are the latest Ford GT, Koenigseggs, Paganis, McLaren P1& Senna, Porsche Carrera GT & 918, and the Ferrari LaFerrari & Enzo.  While there are some owners of these cars that drive them regularly, the vast majority of the cars that come onto the market have probably spent more time on the inside of a transporter than they have on the road.  One thing all these cars have in common is they can be quite challenging to drive if you do not have a lot of experience with very high-powered supercars.  Looking at each one in a bit more detail:

 

Ford GT (2017-2022)

If there is a poster child for the low to no mileage Tyrant, it’s the latest Ford GT.  Production of the Ford GT started in 2017 and will end in 2022 after a total production run of 1,350 cars.  Ford indicated as part of the application process, that they were looking for buyers who would drive their Ford GTs.  As part of the buyer’s contract, Ford GT owners are required to hold the car for at least 2 years before they are allowed to sell.  As a result, it was only last year that Ford GTs really started coming onto the secondary market.  Looking first at the Ford GTs that have come up for auction in 2019 & 2020 (HammerPrice is a great resource), 14 GTs have come up for auction, the highest mileage Ford GT had 2,832 miles on the odometer (it was a no sale) and the lowest mileage Ford GT had 15 miles with another at 30 miles. Of the 14 GTs, seven had been driven less than 500 miles.  In addition, there are 9 Ford GTs currently for sale on autotrader in the US with the highest mileage car at 4,000 miles and all the rest are under 1000 miles.  In fact, 4 of the 9 have 100 or less miles on them. Pistonheads in the UK lists 3 Ford GTs for sale all with 600 or less miles on the clock.  Moving on to the broader European market at autoscout24, it’s the same story again.  Five Ford GTs for sale and all have 300 or less miles under their tires.  This leads directly to the question of why aren’t they being driven, especially given Ford’s stated goal of only selling to owners who would drive their cars?  Per Steve Sutcliffe’s review for EVO Magazine: “Bottom line; the Ford GT is an epic car to drive – on a track – because fundamentally it’s a racing car at heart. No question about that. But on the road, it’s only so-so.” It would seem that the GT is just not that great a car to drive on the road and with a tiny gas tank, you are lucky to get 200 miles in between petrol stops.  It would seem that the racetrack would be where you would find Ford GTs regularly.  However, talking to friends who are track rats, a Ford GT is a rare sighting.  I was also a bit shocked when I looked at the Ford GTs basic performance stats that a 2015 McLaren 675LT would leave it in its rear-view mirror.  For those Ford GT owners/speculators that managed to get a build slot hoping for a major pay day, the last two cars to sell at auction went for $780k and $760k.  Back out a fairly standard 10% auction house commission and the sellers net is roughly $700k.  Base price on the Ford GT is $500k but with a few options, a sticker of $550k or more is more likely.  Add in sales tax of around $35-40k and speculators are walking away with a $100k payday for letting a Ford GT sit in their garage for two years.  With production continuing for several more years, I doubt any premium will hold long term as there will just be far too many Ford GTs on the market.

The Koenigseggs & Paganis

Values on Koenigseggs and Paganis have risen dramatically in the last decade and as values have gone up, mileage seems to have gone in exactly the other direction. Koenigseggs are not frequently sighted on the auction block with only 6 having made the trip across in the last five years.  Paganis are a bit more extroverted with 16 showing up over the same time period.  Of the 16 Paganis, three had more than 4000 miles on the odometer with the vast majority of the rest at under 1000 miles, including 4 that had traveled less than 200 miles. Koenigessgs follow the same general pattern with a single outlier with 12,000 miles on the odometer and four of the six at less than 2000 miles. Cars.com in the US has a single Koenigsegg listed which has done around 1000 miles. Pistonheads in the UK has five Paganis & four Koenigseggs listed, including our old CCR.  Mileage on all the cars listed is very much in line with those that have come up for auction.  Looking at the ad for our old CCR, it has traveled only 400 miles in the last eight years and it now has an asking price that’s £1.1 million higher than what I parted with it for. Why this CCR is now worth that much more escapes me as its no better to drive today as it was back then, and back then it wasn’t exactly polished (recent vlog on the CCR – MrJWW). 

McLaren P1 & Senna, Porsche Carrera GT & 918, the Ferrari LaFerrari & Enzo

All of these cars are intimidating but in experienced hands they are highly rewarding.  All are frequent visitors to the auction block with auction examples carrying mileages in similar ranges to the Paganis and Koenigseggs.  Where you do see a bit of a departure is when you look at the classifieds on both sides of the Atlantic.  Higher mileage examples start to appear, and I get the feeling that these cars end up either with enthusiasts that buy to drive or speculators that acquire and hope for appreciation.  In the past, it’s been the hope of appreciation that’s kept many of these parked, but now, with all except the Senna, Carrera GT, and Enzo dropping in value recently, that may start to change as more speculators look to exit ownership and these cars pass into the hands of enthusiasts who are buying to drive.  As an example of this several P1s and Sennas that are regular track day participants along with a number of owners who use their P1s frequently.  I also suspect that there are as many Carrera GTs with 25,000 or more miles on them as there are with 2,000 miles displayed on the odometer.  The LaFerrari & Enzo are both completely enveloped by the low mileage Ferrari mindset while being great cars to drive.  Like the Carrera GT, the Enzo takes time to learn how to drive well but is very useable in general.  There also seems to be a trend that as the Limited Edition supercars from Ferrari, McLaren, and Porsche age, they fall into hands of owners who drive them more frequently.  I see more Ferrari F50s out and about today, then I did a decade ago. 

Summary

While I don’t believe I will ever truly appreciate the car as collectable art mindset, nor buy into the auto speculators philosophy, these buyers do represent key and significant parts of the supercar market.  Of the cars referenced in this article, I can see many of the Ferraris, McLarens, and Porsches leaving the bonds of tyranny behind and eventually being used as their creators intended.  Declining values should help accelerate this shift.  I doubt this will happen with either Koenigsegg or Pagani.  They tend to be bought for very different reasons and by a different type of collector.  The latest Ford GT is much harder to call.  The Ford GT is still rolling off the production line, auction prices have dropped over the last 12 months, and the final production numbers will not exactly make it rare.  If the potential profits on flipping the GT after 2 years disappear, this may just coax more GTs out onto the road.

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October 2020

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Supercar Market Update – Q3 2020

Supercar Market Update – Q3 2020

Back in July, I summarized the situation among supercar manufacturers (Supercar Market Q 2 2020) as:

 

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. 

Which brings us to today. While factories have restarted production, we are still a long way from normal.  Supply chains are still very much pressured and just because the production line is operating doesn’t mean all the parts to build a car are available.  I have heard of multiple delays on supercar orders that had been given build start dates.  This speaks directly to the supply chain challenges and with COVID cases rising in many countries, its unlikely to get better soon.  While Ferrari, McLaren, and Aston Martin have all reduced their 2020 production targets (Aston Martin & Ferrari’s 1st Half Results) (McLaren’s 1st Half Results), a lot needs to go right in the next couple of months to just be able to produce the lower number of cars.  On the bright side, with factories closed for several months, it did help both McLaren and Aston Martin work down their inventory gluts.  More on this to follow in November when Aston Martin, Ferrari, and McLaren all release there Q3 results.

In talking to a few supercar dealers, almost all indicated that sales the last few months have been good.  Both new and used cars supercars have been moving well and if anything, there has been less discounting than normal.  The biggest challenge in many cases has been getting enough used stock to sell.  However, this hasn’t driven used prices north, from what I have seen, they have remained fairly stable, but data is in very short supply.  Where there has been some data, it has been generated by the big auction houses which have moved several of their premier events on-line.  In these auctions, I’ve continued to track the Ferrari F355, Porsche Carrera GT, and the Ferrari 365 GTB/4 Daytona, as I believe these are good bellwethers for the market in general.  On occasion, I also take a glance at Koenigseggs, the McLaren P1, Porsche 918, and the Special Series Ferraris out of personal interest. 

A few Q3 2020 results of interest are:

 

13k Mile 1971 Ferrari 365 GTB/4 Daytona, Sold $650k

NA Mile 1970 Ferrari 365 GTB/4 Daytona, Sold $455k

56k Mile 1971 Ferrari 365 GTB/4 Daytona, Not Sold at a High Bid of $460k

36k Mile 1972 Ferrari 365 GTB/4 Daytona, Sold $390k

27k Mile 1998 Ferrari F355 GTS F1, Sold $45k

25k Mile 1997 Ferrari F355 Spider 6-Speed, Sold $73k

35k Mile 1996 Ferrari F355 Spider 6-Speed, Not Sold at a High Bid of $62k

30k Mile 1999 Ferrari F355 Spider F1, Sold $62k

3,700 Mile 2016 Porsche 918, Not Sold at a High Bid $1.06 mil.

 

If you look at the longer-term trends, it is very consistent with where we were trending year ago.  Ferrari F355’s have stabilized in the $40k-70k range depending on spec and Daytona’s continue to drop with the latest sale now under the $400k line.  I would not be at all surprised to see a $350k Daytona in 2021.  This is in line with demographic shifts as the older cars are less appealing to the younger generation of enthusiasts who did not grow up with them on their bedroom walls.

The Porsche 918 no sale at $1.06 million is a good representation of the situation in the market of the last two generations of limited-edition supercars (No Longer the New New Thing).  Q3 is normally when all the big auction houses would be hosting their Monterey sales.  This year all of these sales moved online.  With the exception of this 918, whose high bid was $200k short of the low estimate, and one Enzo which sold at under the low estimate (the sale price was $250k less than the next lowest price Enzo sold at auction this year) there were no LaFerraris, McLaren P1s, and Carrera GTs in any of the auctions.  Normally there would be at least of couple of examples of each of these going across the block in Monterey.  Clearly owners of these cars don’t want to take the risk right now that the exposure to the public market will have on values.  A quick look at P1s on Autotrader highlights the reality gap on pricing in this group.  The lowest price P1 listed for sale on Autotrader has an asking price of $1.3 million.  The highest price P1 sold at auction in the last year went for $1.1 million and the lowest was $990k (this P1 is for now sale at a dealership with an asking price of $1.34 million).  The owner of the P1 which sold at $990k probably only netted between $900-920k after auction house fees.  I have heard of a few private P1 sales happening at around this level which is probably where the market really sits.  The same reality gap applies to the Carrera GT.  Carrera GT asking prices on Autotrader have actually trended up in the last six months by around $50-70k and now are just under $800k for a silver car with around 4,000 miles on it.  However, the last Carrera GT to show up at auction was a silver car with 5k miles on it which was a no sale at $570k.  The last Carrera GT that sold at auction was an ultra low miles (766 miles) car which went for $710k.  While the market is no longer frozen, there is a major gap of 30%-50% between where asking prices currently sit and where the last known public sales actually happened.

A quick glance at Koenigsegg indicates that it still operates in a logic of its own.  Looking at a few classified sites globally, it looks like the same group of cars are listed that have been for sale for quite some time.  Asking prices haven’t moved downwards recently despite having risen astronomically in the past few years.  Of all the Koenigseggs for sale, the highest mileage example I could find was actually our old Koenigsegg (Our Koenigsegg CCR) which now has 7,900 miles on the odometer.  It had 7,533 miles on it when I sold it in 2012.  Koenigsegg’s are truly the poster child for the low mileage crowd (The Tyranny of Low Mileage).

So, how does this square with record levels of unemployment and economies that are officially in recession?  When you stand back and look at both the actions governments have taken to date and the profile of the average supercar buyer, it actually makes some sense.  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 in some areas have actually increased as many of those that can afford to flee from cities to the countryside have.  Global stock markets have recovered from an initial dramatic dip.  The Dow Jones Industrial Average is up 12% from where it was at a year ago and the FTSE is down a similar level.  The FTSE performance is probably more driven by Brexit uncertainty than Covid-19.  All in, the net financial impact of all this on the average supercar buyer has been fairly neutral and many have not felt a significant decline in their overall net wealth.  With sports, entertainment, dining out & travel basically shut down or significantly reduced and expensive vacations off the agenda for the foreseeable future, supercars have been one of the few available outlets and its driven sales.  Most of these sales have happened in the $50k-$300k end of the supercar market, and it will be interesting to see how sustainable this is as the summer driving season turns towards winter in the northern hemisphere.  On top of the seasonal change, stimulus payments have dried up and its leading to a second wave of unemployment.  A good example of this is American Airlines laid off 19,000 employees on October 1 after the initial Covid relief package funding ended.   Where in most recessions, the pain is spread across society, the economic impact of Covid-19 has really started at the bottom of the economic ladder and is now working its way up.  With a second Covid-19 wave now hitting both Europe and the US, a quick recovery seems like wishful thinking. 

 

In summary, right now we have a supercar market that has enjoyed summer.  However, all bets are now off.  The Covid driven factory shutdowns greatly helped a number of manufacturers clear excess inventory, but it also inflected severe financial pain on almost all.  Not all manufacturers will survive, and those that have so far are already talking about much more modest ambitions.  The Covid-19 pandemic is far from over, many of the changes it has caused are now permanent and the new normal, whenever it finally emerges, will certainly be different from the way the world looked in 2019.

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