The New Reality

The inspiration for this column occurred in March, when I returned from lunch to find an email from a Lusso owner who wanted us to sell his car and net himself $700,000—about $200,000 over the retail price for his Lusso in today’s market. The very next email was from a client who had been web surfing and found an Indonesian site offering photos of a 275 GTB/4 (but with a 330 GTC serial number) for $400,000. He simply didn’t “get it,” or didn’t want to “get it,” that there were no bargain 275 GTB/4s for sale in Indonesia, and wanted to find a restored 275 GTB/4 for $400k—at least $500k under today’s market.

Simply put, too many would-be sellers are lost in the ozone of last year’s prices, using the 2008 peak-of-the-market numbers to gauge the value of their cars. Conversely, an equally large number of would-be buyers dwell in a fairyland of Ferraris at 60% or more off. Neither is in touch with today’s reality. So let’s spell out current selling prices and percentage drops for an accurate picture of the market.

Real estate leads the way
Just as the real estate crash led the U.S., England, Spain, and Ireland into this recession, so a real estate recovery will ignite the long climb back to prosperity. As real estate begins to hit bottom, let’s quantify the recession’s effect on the Ferrari market. The Ferrari historians group I belong to agrees that RM’s May 2008 auction at the factory in Maranello and the Monterey auctions of August 2008 were the high points of the 2003–08 Ferrari boom. So where are we now?

The numbers don’t lie
One only needs to compare a few same-model, same-condition sales from the RM auctions at Maranello in 2008 with the RM auction at Maranello in 2009 for statistical answers. For example, 250 Lusso s/n 5143 was the subject of a five-year restoration and so brought “all the money” at the 2008 auction at $1,174,553. What a difference a year makes: 250 Lusso s/n 4405, also freshly restored (admittedly to a lesser standard) sold at the 2009 auction for $605,000, a drop of 49% in just one year.

Further up the food chain, 250 LWB California Spyder s/n 0923 sold for $3,659,838 at the 2008 auction, while 250 LWB California Spyder s/n 1487 sold for $2,911,563 at the 2009 auction, a drop of 21%. Shifting to newer cars, Euro model F40 s/n 89307 sold for $674,091 at the 2008 auction while Euro model F40 s/n 88835 sold for $393,250 at the 2009 sale. That’s a drop of 39% for similar cars.

Ferraris of the 1970s, the Baby Boomer poster cars
Switching to the “poster child” cars of the 1970s, the cars that Baby Boomers relate to, we can compare the sales of a 246 GTS, a Daytona coupe, and a Daytona spyder for what is probably the best confirmation of the new market reality. A 246 GTS, s/n 6294, a red with black Euro model car, sold for $204,270 at the 2008 sale compared with 246 GTS, s/n 5104 GTS, also finished in red with black, which sold for $143,688 at the 2009 auction. That’s down 30% for a comparable pair of nice, driver-level Dino spyders.

Moving to the poster child for the first supercar, a Daytona 365 GTB/4, s/n 14345, finished in red with tan and black, sold for $425,563 at the 2008 sale. At the 2009 sale, 365 GTB/4 s/n 13653, finished in silver with red and black interior, sold for $287,375, a drop of 33% for a relatively comparable pair of Euro-model Daytonas.

On the subject of Daytona spyders, 365 GTS/4, s/n 14415, a beautiful but older restoration in black with tan, sold for $1,489,469 at the 2008 sale. Fast forward to 2009 and s/n 14543, an ultra-detailed, time-warp, low-mileage Daytona spyder finished in white with black was bid to $1,031,250 but not sold. I’d opine that the bid of $1,031,250 was indeed all the money in today’s market, and it represents a drop of 31% in a year.

Bottom line, it’s a 30% off sale
In a contango of rising Ferrari prices, the trend is your friend, until it ends. As the credit markets froze in late 2008, so did liquidity in the Ferrari market. Fed Chairman Ben Bernanke’s “Quantitative Easing” (printing money) and massive bailouts have regreased the world’s financial markets, real estate is hitting bottom, and the world’s stock markets are rebounding. Likewise, the Ferrari market has returned to a refreshing level of liquidity, with cars again selling, although more or less 30% off last year’s prices.

This too shall pass
It takes a lot of buying to move a market upward, but a mere lack of buyers creates a bear market. In the last year, the Ferrari market was negatively affected by a number of owners who had to sell their cars. Too many motivated sellers, too many cars, and too few buyers created today’s lower prices. The problem of cars being squeezed slowly along to too-few buyers is behind us. Those owners who had to sell have sold. We are now back to price stability, but at 30% below before and with no prospects of a speedy uptick.

Ferraris as a lagging indicator
Ferraris are a lagging indicator, as was clearly shown in 1989, when Ferrari prices remained strong long after U.S. real estate and the stock market had fallen off a cliff. Again last year, Ferrari prices continued to climb while Bear Stearns imploded, Indy Mac was seized, Fannie Mae and Freddie Mac were nationalized, and Lehman Brothers sank into oblivion.

In only a year, the planet has experienced deleveraging on a breathtaking scale. The good news is that relative to banks and real estate, the drop in Ferrari prices has been modest—especially compared to the severe drops in the 1990–95 collector car price crash.

Ferraris remain liquid; buy-sell agreements can be made in a day, pre-purchase inspections effected in a few days. Ferraris have wheels, fit into trucks and cargo jets, and can be anywhere on earth within a week or two after purchase. Buyer demand—the arbitrage of weak dollars to strong euros and sterling, or vic-versa—will always provide buying opportunities. Once real estate rebounds, the stock markets revive, and employment picks up, Ferrari prices will again rise.

There’s the best and the rest
The one thing we know about trends is that they are eventually going to end and collector car prices will rebound. But on the other hand, buyers do not wake up one morning and decide they will buy the highest-priced, least-documented car on the market. I’m still amazed how many sellers fail to grasp this simple concept. Regardless of where the market may be, it takes the best car, with the best documentation, best service history, best marketing, and best price to sell.