In 2021, the 20 million richest people in the world own about $80 trillion, and there are about 2,668 individuals who are billionaires. These wealthy households have a wide range of assets to diversify their portfolio. They invest in traditional financial assets (stocks, bonds), real estate (residential and non-residential), alternative investments (such as commodities, cryptocurrencies, infrastructure) and in a broad category of collectibles, luxury goods and passion investments (art, fine wines, jewellery, gems, antique furniture, coins, stamps, rare books, autographs, etc.)
An extensive academic literature has focused on the particularities of these collectibles, such as commissions to intermediaries, convergence, heterogeneity, illiquidity, market segmentation, opacity, specific taxes and transport costs.
Read more: What motivates wealthy collectors?
The value of these assets therefore generally does not vary at the same time as the other assets, as it is influenced by specific factors. These assets therefore make it possible on the one hand to reduce the risk without necessarily leading to a proportional reduction of the expected return and on the other hand to protect a portfolio in the event of a market downturn.
A playful investment
Among these assets, collector cars are highly sought after by wealthy investors, especially for their playful side. Aesthetics, engineering, rarity and performance also appear as specific characteristics that determine the value of collector cars in a market characterized by high opacity.
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But is the prospect of a return on investment on resale part of the buyers’ motivation? In a research paper (forthcoming), we examined classic car investments over a longer period of 27 years (1994-2021). In particular, we show that the average annual return is relatively low, between 1.6% for entry-level collector cars and 3.12% for Porsche.
Moreover, these average returns appear even lower if we consider the transaction costs associated with auctions, the costs of restoration, maintenance, conservation, technical control and insurance. If investing in this alternative asset does not generate significant financial gains, we can therefore imagine that it is primarily an investment linked to a passion.
An active market
This passion is the engine of an important market. With 5 million classic cars on the list, the US is the largest market in the world. Each year, around 40,000 of these cars are exported mainly to Europe (Germany and the Netherlands account for more than 50%) and Australia.
This vitality contrasts with unexciting prospects: thermal cars are indeed destined to disappear in the near future in favor of less polluting vehicles.
Currently in Europe there is no harmonization on the way for the future of vintage cars and more generally for vintage cars. Some countries still offer derogatory schemes for vehicles over 30 years old, a criterion given by the International Federation of Old Cars, such as in Belgium (permission to drive up to 3,000 km per year), in France (grey card “collection” ) and in Germany (“H” license plate for so-called vintage cars).
However, specific charges or stricter regulations could quickly be created, such as vignettes that would allow the circulation of a vintage car in restricted areas and on certain days.
Given these future constraints and the low returns observed, passionate and emotional investment therefore appears to take precedence over the simple desire for financial gain.