Why did the exotic car market explode?

[Music] in general the exotic car market will exaggerate any underlying economic trends as the market goes up the car market goes up even higher if the market crashes the car market might crash even harder than that and that makes sense right if there's any kind of a luxury good or unnecessary purchase when people are struggling to make their mortgage payments or thinking about firing their employees buying stuff like that doesn't make a lot of sense so you see the same thing in jewelry and vacation homes and boats and anything else that people buy when they have excess money and so like in 2008 to 2010 when we saw a big contraction in the economy as a whole we saw an even bigger contraction in the exotic car market and early in 2020 as the pandemic began we saw kind of a pause in the economy where people really weren't sure and then a slight dip but since then the growth has really been hard to explain now of course there have been a lot of external factors operating on the economy in the form of governmental subsidies and stimulus bailouts and all sorts of grants and forgivable loans and things that we have seen the u.s government do locally in order to avoid what would seem like an inevitable contraction in the economy now of course that hasn't really happened in fact the s p 500 and the dow are up almost 30 percent in the last year it's crazy to see just how healthy the economy has been when the world it appears is as unhealthy as it all seems to be so today i wanted to spend some time discussing some of the factors that are definitely at play in the exotic car market and explain sort of why we're seeing some of the crazy transactions the crazy sales numbers that we have in the last few months now a lot of this began with a true supply and demand issue both on a new car front and a used car front now on a new car front we did have shipping issues microchip shortages and a lot of factors that made it harder for new dealers to have inventory and certainly we had shoppers eager to buy all of these cars on a used car front we had a lot of generous floor plan lending these big lines of credit that dealers will use to just go to an auction and buy everything so a lot of these independent high line dealerships were buying everything they possibly could at dealer auctions without really caring if it was in line or out of line with the market and so not only did you see some low margin transactions but you saw some long term days in inventory and some very retail looking numbers in wholesale auction results now obviously people seem to have a lot of money and that's hard to make sense of when there are a lot of people whose jobs were compromised when everything got shut down but we know that their income was in some cases guaranteed but of course the people who are not being evicted are not necessarily the same people who are out buying exotic cars but regardless there was money in the economy that wasn't there naturally and so whether it's a ppp loan or somebody not having to pay their rent in either case the fact that people have more money gets magnified through the economy and into the exotic car world but if you think about the case of a small business owner in many cases they still had demand for their product but in many cases they could not travel they had lower real estate costs they had lower utilities costs and the things that really do impact the bottom line of a very small business kind of went away and those are very quintessential players in the exotic car buying world but they had a lot of money and they didn't necessarily have a lot of other ways to spend it they weren't going out to restaurants they weren't entertaining clients they weren't spending a lot of money in travel they weren't going on vacations with their family and all of that money was very easily diverted into the exotic car world now why would they focus on cars an interesting phenomenon that i always observed at lamborghini atlanta if you ask any car dealer they'll tell you that this is the case especially in the high-end brands the busiest week of the year is always between christmas and new year's now if you're a honda or toyota dealer where you're trying to make a month make a quarter make a year and sell as many cars in those few days as you possibly can that's not that uncommon but we saw in the exotic car world a huge spike in leads people were actually on our website browsing more during that week and you would think it would be a very busy week for people especially high net worth people who are entertaining out of town family and things like that but in reality they got tired of that family and they set at their computers looking at cars trying to avoid that family and they were very very bored some of them might have been using these cars as end-of-year write-offs and they wanted to do some last-minute deals but regardless when people are bored more exotic cars get sold and what happened the last year and a half a whole lot of people got very very bored and if they had a little bit more money exotic cars became the way to spend it now they also had unique abilities to borrow from 401ks and do other things that would have normally had tax consequences without those consequences so that's another governmental force at play that is being magnified into the exotic car world because they started to see that certain cars absolutely were going up in value these were very low mile examples of significant japanese and german cars which was a little bit extraordinary but at the end of the day they were cool cars that were hard to find in rare low mile examples we saw some very logical cars appreciate in value your query gts your lexus lfas slrs to some extent diablos countaches significant mercilegos the cars that we've always known sort of deserve to be a little bit more valuable honestly most of them became more valuable in the last year or year and a half and so that all made sense but you always are going to see kind of a coattail effect where other cars follow the same trend so if a current gt goes up in value gg2s and gt3s and things like that are also going to follow suit if we see significant diablos go up in value what about the less significant ones there's a 91 two-wheel drive car that's not all that great to drive and not necessarily as rare as an sv or an sc or a 6-0 are those going to go up in value well we saw that they did and beyond that we saw that all exotic cars just seemed to climb in value and not necessarily the ones that you would have expected i mean we know that buyers in their 30s and 40s that have a little bit more liquidity at this time in their life are going to buy the cars that were really cool when they were young it's why i'm not unique in being out there trying to look like a lottery winner from 10 or 15 years ago those cars in general have been very very healthy from a market perspective we also live in a world of increased visibility for these transactions as they happen online a lot of these things were happening on bring a trailer or cars and bids or the mb market or any of these other online auction marketplaces or even facebook marketplace that are popping up all the time and so that means that when a high water mark happens it gets very empirically documented easy to share sent out on mailing lists and then people are really really aware that the market in general is rising and so that allows this kind of anticipation this gold rush of trying to find these really special cars especially when you see that a car that may have sold six months ago is now selling for 20 30 50 more in the same type of environment now i've talked a lot before about how people make money on cars and there's really three ways dealers make money between a wholesale and a retail margin they buy cars in a circumstance very fast very liquid no inspection in most cases and they clean them up and they market them in a better way to a widespread market there's also an arbitrage which is similar in that you take a card from a limited market you take it to a larger market and that larger market inevitably pays more in these cases though it seemed like the third thing which is genuine market appreciation now in most cases the other two get called that that a dealer has just bought the right car at the right time or a car flipper has actually bought the right car as it appreciated but the values were never different if you sell a car in 30 or 60 days that is in general the same market condition here we are seeing the market as a whole appreciating cars more which means the car values do appreciate and so seeing those trends does develop a bit of a bandwagon effect and that's what fuels bidding activity is what makes this all kind of perpetuate and we've absolutely seen that a lot in the last few months now there's also something happening that i would call the bitcoin effect and i don't mean that crypto millionaires are out there impacting the market with all of their new wealth i mean certainly that has happened but that's not enough to really change the way a market works what i mean by that is in the world of cryptocurrency there are a lot of people participating in investments that they do not fully understand now the stock market's always been that to some extent they're investing in the business activities of businesses that they don't own know or really even care that much about but in the case of cryptocurrency that's not necessarily backed by a tangible asset not that the us dollar is either we had a situation where there were a lot of people making a lot of money and actively engaging in a marketplace without really understanding exactly how it works and what that means as a culture is that we become a lot more comfortable in that idea that we are participating in a marketplace that we don't necessarily have to understand to take advantage of the appreciation or the investment opportunity that might be happening there so there's plenty of people that don't own a lot of cars that haven't owned a lot of cars in the past that just have some money have some boredom and they go out there into the marketplace and they pay whatever the market seems to bear because either they don't know any better or they just don't care they've heard or they've seen that values are going up and they're just buying stuff that they like now hopefully it is what they like and not necessarily a pure investment play because one thing i have to constantly remind people of and doug tabit from switch cars does an excellent job of this he'll say that you should not treat cars as an investment now from a short-term perspective sometimes that does work i will say however on a decade or more time frame no car has ever beaten the stock market now certainly there's cars that have doubled in value in a year and that might cover a decade of activity but that didn't happen in years two through ten that happened very quickly it might even happen over two three four years but it won't last a decade so flipping cars can be a great way to make money again it may not always be appreciation that it's actually happening but regardless this will not sustain and in fact honestly if i had to think of any car that's beaten it for more than five years there might have been a window following enzo's death where 250 gtos did that but again i'm not sure they did they went up very very fast almost a million dollars a month in the value of some of these cars and then it was periodic transactions that again happened in a moment but didn't reflect this global trend in car value i was also talking to john tamarion from curated about this this week and he mentioned something that i found to be very very fascinating he called it the yolo effect so you only live once and we are absolutely seeing that if anybody could even remotely justify cars as an investment there are certainly a lot of people that are making that their investment they're taking money out of savings accounts and college funds and investment accounts and places where it probably needed to be a little bit safer and they're buying cars with it they're like if we're all being told constantly about how mortal we actually are and all these risks of debt that we're encountering why not spend the money that i have on something that i can enjoy that may or may not go up even though they probably all believe that they are going to go up and i think that's why you're seeing some of these cars that don't necessarily make sense going up in value cars like aventador svjs and svs that are great cars they're wonderful cars but they're not that rare and never have we seen a really really special even version of a v12 lamborghini immediately gain value that way i mean the idea that a special svj roadster is somehow worth two three hundred thousand dollars of msrp is rather unprecedented in the world of lamborghini 10 15 20 years later for sure that absolutely happens and we've seen that time and time again but not immediately and by that same token hurricanes that are six years old now trading for within 20 percent of msrp when they were a whole lot less just a few short months ago things like the urus i mean eris yours however you want to say it that's a very very hard thing for me to wrap my head around it because i sat in the dealer meetings ten years ago as lamborghini kicked back and forth the idea of do they bring out an suv or do they bring out a four-door sedan they knew they wanted something that could appeal to the mass market but at the time i think porsha that year had sold like a hundred cayenne turbo s's so at 135 40 000 price point they could not sell these high performance suvs so the suv market didn't seem that great with the only two outliers ever being brand new range rovers the 13s and 14s were being exported like crazy and so those were being propped up by an arbitrage opportunity and g63s which had done very well but again those were very much anomalies rather than something to kind of bet the brand on and sedans didn't have much better track record but there were just more of them that had done better and there's more ways to sort of make your car special than the ways that suvs are all same platform and just sort of rebadged but regardless eris says we're almost immediately and still are over msrp propositions the idea that a quarter million dollar suv even exists much less that it's worth 10 20 over sticker is crazy the same obviously for c8 corvettes they're still worth 20 30 grand over msrp in some cases and in some markets with the z06 announced and fairly imminent but people are still paying up for a car that is absolutely not rare now truly rare cars and i would say that is 300 or less really good examples still available throughout the world those deserve to go up in value when there's an audience for them there are cars that are rare because nobody wants them but if a car is that rare and actually cool from a cool brand that has some kind of pedigree then those sort of deserve over time to be appreciated but a lot of these cars that are absolutely not rare fairly new mclarens every kind of porsche those are a little bit difficult for those of us that have been in the exotic car world for a fairly long time to wrap our heads around so the logical question that gets begged is is it all about to collapse is this some bubble that is going to get popped and my answer is no i believe that all of the factors are fairly genuine even if they are sometimes misinformed people do have more money to spend they are bored they are interested and they are seeing legitimate trends they may be somewhat baseless in the appreciation that we're seeing in these cars but they're not overly leveraged it's not like banks are stepping up to loan someone two hundred thousand dollars on a low mile mark for stock supra those are in general transactions that are funded externally either their money that was already somewhere else or that money that somebody just honestly had and so what we will see is that dialing back over time people will have other things to spend their money on they'll be less bored they'll be less trapped they'll be more interested in growing their business and investing elsewhere and doing things that maybe are a little bit more traditional with their money but that won't be a light switch it's not the same thing as mortgages collapsing in 2008 it's not the same thing as car loans evaporating like we saw shortly after in these cases yeah some of these cars are going to go down in value they'll become more like we've seen their predecessors or any other cars like them perform in the marketplace in a general way but i think that won't happen abruptly and that means i don't think it's gonna be a bubble popping i mean yes the world will come back to reality and a lot of these cars that are truly rare that have gone up are gonna stay really really valuable and the ones that aren't truly rare aren't gonna be as valuable that all makes sense the ones who get replaced by something that's actually better those are going to start to come back down but i don't think it's going to be a losing 10 a month proposition like we have seen in the exotic car market before i think it'll just be some kind of lower than you'd expect transactions in these very public marketplaces and then the market as a whole kind of gets sobered up so if you want a car what should you do today well as always buy what you want because again while there might be short-term flip opportunities and if you find a great deal on a car you know well and you know you can flip there's nothing wrong with doing that today like there's never anything wrong with doing it at all but if you're just buying cars as an investment it's probably time to be a little bit more careful about that ask someone who has seen the market come and go if they think that's a really a worthwhile target for your investment money and most of them should tell you no but regardless buy what you want buy what you want to drive that's always my advice you will never get too upset by a car that you're putting a lot of miles on and enjoying even if it goes down in value or depreciates or whatever you want to call it you're going to love it as long as it's making you enjoy every mile you get to drive in it so i hope that helps make a little bit more sense of the crazy economic world that we're living in from an exotic car perspective i wish you all the best in your own car ownership expenses flips and things like that thank you so much for watching [Music] you

Channel: VINwiki

Views: 175,004

Rating: 4.9429693 out of 5

Keywords: Ed Bolian, car business, business, sales, entrepreneurship, vinwiki, car stories, vehicle history, investment, appreciation, arbitrage, value, auction, ferrari, lamborghini, mclaren, f1, car week, auctions, gooding, rm, advice, money, finance, leverage

Id: IwYh-MEt5x8

Length: 17min 55sec (1075 seconds)

Published: Mon Aug 16 2021