The Good, The Bad & The Ugly
Hi Friends!
As we all know, Monterey Car Week is now in the rear view. Obviously, we’ve been making a big deal about this for the last month or so, but the fact is, Monterey is important. With so many transactions happening at the same time, with so many buyers and sellers face-to-face in one environment, it’s one of the biggest indicators of the year of where the marketplace currently is, where it’s currently going and it provides significant perspective about what to expect down the line.
Coming into Monterey 2024, we were expecting one of three scenarios:
1. Things sell, they sell well, the market upticks and everybody feels shiny and happy on their way out the door.
2. Some things sell, but not everything. Sellers hold reserves, things trend in a predictable manner (in both directions) and everybody moves on with their lives
3. Things sell, but sellers pull reserves way below market value and Monterey Car Week turns into a horror movie.
Here’s the hard data from Monterey 2024 (courtesy of the folks at Hagerty)…
2024 Results through Saturday
Cumulative Total: $370.8M
808/1,143 lots sold: 71% sell-through rate
Average Sale Price: $458,881
Average price $459,000, down from $478,000 in 2023
Sell-through rate 71% vs. 69% in 2023
Sell-through rate for $1 million plus is 52% vs. 63% in 2023
Total sales are down 8% vs. last year
So obviously, 8% looks like a lot, and there rightfully is a little bit of cause for concern, but the reality is, this year we got a little bit of number one with a little bit of number two sprinkled in and one significant example of number 3 (which we’ll get to below)…
As we predicted, the top end of the marketplace stayed home this year. Some of this was due to the general annoyances that we reported on a month or so ago (which two organizations in particular definitely chose to double down on. We’ll see what the results of that are next year), but overwhelmingly, the reason breaks down to one major thing: interest rates.
For the last 18 months or so, we have observed a fairly historical trend regarding this hobby and this industry. The majority of this business can handle inflation. What we can’t handle is high interest rates. This has been the most destructive phenomenon that this industry and this hobby has seen in probably the last 30 years and the damage is very real. As we’ve seen with our clients (and by default, their clients), it’s making the low end of the marketplace (who to a degree are also being hurt by inflation, as their primary client base has significantly more restrictions to deal with) unable to access cheap cash in order to operate and has squeezed their profit margins. On the other side, it’s made the high end of the market inactive by providing them with other alternatives in order to grow their money. This has put a major squeeze on both sides of the marketplace and this is something we have not seen before.
Basically, this entire industry has been sitting on its thumbs, doing nothing and hanging on for dear life for the last 18 months. Unfortunately, because of this, some segments (and the organizations that serve them) are beginning to break.
The fact is, in times of economic difficulty, this business and this hobby generally flourish. If you look at all the recent financial catastrophes that this world has suffered through, overwhelmingly, these are the times when collector cars do the best. When times are tough for higher net worth individuals, the lower end generally has more discretionary income and keeps the low end busy. For example, when we saw everybody else suffering between 2008 and 2014, Enzo era Ferraris exploded in value in a capacity that was unprecedented. Even the pandemic was total gangbusters for this space as collector cars became one of the only safe outlets available during social distancing and lock downs. There’s always been some place to go if you’re established and you make a living here, but high interest rates have provided a situation where neither is providing solid options. Unfortunately, a large percentage of this industry has been quietly suffering for a long time as a result.
Sounds bad right? Hold your ponies, because Monterey this year has actually still shown us some real bright spots that are worth getting excited about.
First of all, it was pretty clear what was likely to perform coming in. There was too much inventory over a million dollars in the classic segment again this year and overwhelmingly, as we knew was going to happen, high end buyers decided not to participate. This said, the really good cars that had all their ducks in a row (i.e. not painting your twice wrecked Ferrari F40 stupid colors) pretty much did what they were supposed to do. Quality is king at that altitude and although there were a few, there wasn’t a ton of surprises there. The sellers with the best cars, who prepared them the most thoroughly, got the best returns. End of story.
Secondly, the generational shift has occurred and it’s obviously trending upward. Late model exotics (especially Porsche) performed exceptionally well and younger buyers (meaning Gen X and older Millennials) definitely showed up with cash in hand, ready to set world records (which they definitely did). Of course, there’s still questions here, as there are significant holes in the discretionary earning years of buyers and collectors of this age and they are not as well off as the previous generation was at the same point. So it will remain at interesting to see how active they are, but it’s safe to say that this segment now controls the marketplace. This is probably the most positive piece of data coming out of Monterey 2024, as we now know which direction to operate and who to focus business on. That matters a whole lot.
Third, although definitely fun for the world overall, serious collectors are extremely sophisticated, breaking everything all the way down, looking at all elements and at the end of the day they don’t like drama and they don’t like stories. Obviously, the car that everybody’s talking about in this regard is the 1938 Alfa Romeo 8C 2900B Lungo Spider that was sold for just over $14 million (including fees) at Gooding & Company. The question I’ve continuously been receiving since the hammer dropped is “why did they lift the reserve when the car was predicted to bring so much more?” The simple answer here, is that it was not a person selling this car. It was an insurance company and insurance companies just have to do what they have to do and move on. Sitting on an eight-figure asset with an obviously unpredictable value, when that asset has been properly placed in front of literally the entire group of people that might potentially be interested in owning it isn’t particularly good for business. Dealers and serious collectors have the luxury of throwing tarps over things, leaving them in the corner of the warehouse and waiting for additional opportunities (or at least the smart ones set themselves up to be able to do that). An insurance company just needs to adjust their algorithm and get past things and that’s exactly what they did here. This car was not a particularly significant indicator of where the market was going in either direction. If there was an anomaly on the peninsula this year, this was it. Nothing else to see, moving on…
Overall, this was not a particularly great Monterey, but I don’t think it was completely the market that caused this. As a result, as we’re exiting, things certainly could be worse. Again, we did walk away with some pretty significant bright spots here and some obvious new directions to move in. Hopefully, some of the complaints that our readers, friends and clients all expressed will be observed by the powers that be there moving forward as far as the events themselves and Monterey can continue to be a significant date on everyone’s calendars for many more years to come.
On to Arizona…
That’s it for this week…
Darin Roberge