Articles

Michael Sheehan's Ferraris-online.com Article

Ferraris and the Euro

High-value assets with wheels can be moved and sold in whichever market is most advantageous

As appeared in:

Sports Car Market—May 2012 issue

Sheehan Speaks

by Michael Sheehan

599 Aperta s/n 171212, instant collectible?
599 Aperta s/n 171212, instant collectible?

In late December 2011, the Italian Guardia di Finanza (Tax Police) swept into posh ski resorts, the Italian Riviera and other high-end areas in tax raids. Officers stopped hundreds of high-end cars — BMWs, Bentleys, and any Ferrari, Maserati or Lamborghini — unlucky enough to fall into their roadblocks.

The driver’s license and registration were then passed on to the national tax agency to ensure that the cars’ owners had declared enough income — and of course paid the right amount of income taxes — to justify their lifestyles. Currency controls, last seen in the 1980s, have lowered the maximum cash transactions to €1k ($1,331) from €2.5k ($3,328), and money-smelling dogs are now at key border crossings. Cameras monitor cars crossing from Italy into Switzerland to identify possible money launderers.

Tax evasion is estimated to cost Italy about €120 billion ($160 billion) a year in lost revenue. The raids and inspections are part of Prime Minister Mario Monti’s plan to raise money that will curb record borrowing costs on Italy’s €1.9 trillion debt and avoid following Greece, Portugal and Ireland into bailouts.

Monti has also raised taxes on luxury goods, including expensive cars. The owner of a €316,000 ($420,000) Lamborghini Aventador, for instance, will now have to pay about €8,400 ($11,172) for annual road taxes, an instant increase of €6,600 ($8,778) a year.

What does all this mean for Ferrari buyers and sellers in the rest of the world?

New-car sales plummet in Italy

Severe austerity, higher taxes and currency controls have killed off the high-end car markets in Italy, Greece, Spain, Portugal and Ireland.

Sergio Marchionne, CEO of Fiat and Chrysler, recently said that car sales in Italy may fall to the lowest level since 1985 because of budget-tightening measures. The iron law of currency movements is that what you gain on the upside you lose on the downside. As the Euro Zone stagnates, European collector cars should become cheaper to American buyers, although that hasn’t happened yet.

While we get frequent emails from Euro Zone sellers wanting to sell late-model Ferraris, the United States’ emissions and safety rules make their importation too costly. As for Enzo-era cars in southern Europe, they have wheels and can find homes in northern Europe, where the economies are holding up.

Unrestrained Money printing

Governments around the world have engaged in unrestrained money printing since the 2008 financial crisis in an effort to keep banks liquid, keep social programs propped up and keep paying the bills needed to run a country. Over the past decade, that increase in the money supply had to go somewhere, and much of it went into collectibles, real estate, foreign assets and commodities.

In retrospect, one might credit much of the appreciation in rare Ferraris to this phenomenon, both directly and indirectly.

With Greece and Italy imposing currency controls and draconian tax enforcement, holding euros that might overnight be converted into a new drachma or new lira is, at best, problematic. Imagine having a Ferrari 250 GTO in Greece today! If you could only sell it within Greece, what would it fetch? That said, high-value assets with wheels can be moved and sold in whichever market is most advantageous.

Whether these cars turn out to be good investments is almost unimportant, as they are simply part of a well-diversified investment strategy. High-end collectibles are an asset class that’s pretty small in absolute numbers and one that will hopefully escape undue scrutiny — unless they get caught up and used in the class wars that are tainting the political environment of many European countries and even the United States.

The 250 TR, s/n 0666, that sold for $16,390,000
The 250 TR, s/n 0666, that sold for $16,390,000

The flight to quality

As always, the Ferrari upside is in the Enzo-era cars. In the past calendar year, Ferrari 250 GTO, s/n 5095, sold for an eye-watering $32m. Further down the food chain, 250 TR, s/n 0666, sold for $16.4m at Gooding Monterey last year, and 250 LWB Cal Spyder, s/n 1283GT, sold for $5.9m at Artcurial Auction at Rétromobile in February.

For those with lesser budgets, 750 Monza, s/n 0492, sold for $2.5m at RM’s 2011 Monterey auction.

The cutoff for the Ferrari class at Pebble Beach has always been 1972, and with good reason. The Ferraris of the early Enzo-era redefined both race and GT cars. So, the most exclusive, most collectible, and best-appreciating Ferraris have always been — and will always be — the early Enzo-era cars.

New Ferraris

While I’ve had many clients email about the collectibility or investment potential of the 599 GTO or the latest 599 Aperta convertible, both are just another example of Ferrari spiffing up a model before it is retired.

The 550 Barchetta was simply a 550 with a not-too-successful chop job, while the 575 Superamerica was a 575 with a recalcitrant folding top. While both have depreciated to where they are good buys, neither was a good investment for the first buyer. Ferrari claims they will build only 599 of the new 599 GTO and 80 of the 599 Apertas, but we already have 120 Apertas built in our database, putting an end to that claim.

Can you live with the depreciation?

High-end sports car sales in America and China are booming, which negates the implosion of the much smaller Southern European market for new sports cars.

There is no doubt that Ferrari will be building 10,000 cars a year once the economy improves further, so with the exception of the eventual replacement for the Enzo, none of the newer cars have any upside or collectibility.

While the Ferrari 430, 612 and 599 cars continue to depreciate towards a greater affordability, the thought of maintaining or restoring the banks of ECUs and plastic bits 20 years down the road sends shivers down my spine.

The folly of forecasting

Any market forecast is worth less than the paper it’s printed on. Financial forecasting, in the words of the late economist J.K. Galbraith, “exists only to make astrology look good.”

It will be interesting to see how the very intertwined Ferrari and financial markets unfold over the next year.