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An Investment? Wheels May Be Just an Expensive Hobby

965 Ferrari 275 GTB
Bloomberg | Getty Images
965 Ferrari 275 GTB

My interest in cars these days is pretty basic: they have to hold children and dogs and they can’t be a minivan.

Clearly, I’m not a car guy. Nonetheless, there I was last weekend at the Greenwich Concours d’Élégance in Connecticut, struggling to resist the siren call of the beautiful roadsters, muscle cars and concept cars. I wasn’t there to buy. I wanted to know whether they had real value. Or, to put it another way, could they be considered an investment or a collectible like art, or were they money pits like a yacht?

“People turn me off when the first thing they say is ‘What is this worth?’ ” said Ralph Marano, a car dealer and collector from Westfield, N.J. “It’s not about the price. It’s about, I love the cars.”

That love has driven him to buy 85 classic cars — 70 of which, he said, are one of a kind, or at least the only one left. I had no doubt that his collection was valuable, but it was also idiosyncratic: 48 of the cars are Packards, from the first fiberglass model to a station wagon.

Like anything else, rare cars like the 1954 Packard Panther that Mr. Marano entered into the Greenwich Concours will hold their value: he said it was one of only four made. But there are plenty of other classic cars that are just old.

Wayne Carini, a classic car restorer and host of the Velocity Channel television show “Chasing Classic Cars,” said new collectors’ enthusiasm needed to be defined if they wanted the collection to appreciate.

“We try to point them toward quality and not quantity,” Mr. Carini said. “For investment, we want to round someone’s collection out so that A, they are happy and B, they’ve got a great investment. We hate seeing people buy too many nothing cars that don’t make any sense.”

These “nothing cars” were often widely produced. But they may also be falling out of favor because buyers’ tastes are changing. Sedans from the 1920s and 30s, with their Art Deco styling and graceful lines, are losing value because the people who can remember riding in them are dying. (Convertibles, he said, are an exception.)

Mr. Carini said the upper end of the collecting market was where the action was today. One make that is much sought after is Ferrari. (Forget the Camaros and Corvettes if you want to make real money.)

At the auction at the Greenwich Concours, a 1965 Ferrari 275 GTB was sold for $1.25 million, a record price for a car sold in New England., according to Bonhams, the company that held the auction. A 1973 Ferrari 365 GTB that was once owned by the rock star Rod Stewart came in just shy of its estimate but sold for $330,000, including the auction house commission.

“The one thing I always tell people who are collecting cars is that if you go out for a drive and you’re not having fun, if you don’t look back at the car when you park it, then the love is gone,” Mr. Carini said. “It’s time to sell it.”

Many collectors are drawn by memories of a car they once owned or coveted. “Our market is all about nostalgia,” said Rupert Banner, head of the motoring department at Bonhams, the auction house with offices in New York. Right now, for sellers, this can be good, he said. “In troubled times, people look backward more than they look forward.”

But what that longing does to value is tougher to say. Mr. Banner said showing a car in events like the Greenwich Concours did not necessarily increase its value. What may help it, though, is knowing that the car was in such good condition that it stood out for the judges and won a prize. (Mr. Marano’s Packard won best in show for American cars.)

For the most part, Mr. Banner said, classic cars have been steadily increasing in value. But, he added, the vast amount of information available on each model makes pricing fairly consistent. The car has to be exceptional to fetch a price that exceeds similar models.

Last year at the annual classic car auction in Scottsdale, Ariz., a 1955 Mercedes-Benz 300 SL Gullwing sold for $4.2 million ($4.62 million with the auction house premium). It fetched such a high price because it was one of only 29 made with an aluminum body.

Once you own one of these cars, the costs start to mount. For many investors looking for a bargain, restoration is a big expense. Curt Ziegler, an investment adviser in Denver, said he bought a 1956 300 SL Gullwing in 2006 for $500,000. The previous owner had done a complete restoration, he said. Now, that restoration would cost $450,000 to $500,000.

Then, there is the insurance. Jim Fiske, the United States marketing manager for Chubb Personal Insurance, said classic cars were an asset that people could generally insure for what they believed it was worth, within reason.

“If I bought a car for $500,000 and put $400,000 into it to restore it, then we’ll insure it for $900,000,” Mr. Fiske said. “Of course, if someone comes in with a 1979 Volkswagen Bus and they want to insure it for $250,000, we’ll say, ‘Why?’ because it’s only worth $10,000 to $15,000 and you couldn’t spend that much restoring it.”

But insurance does not cover these cars on the racetrack, a distinct subset of the collecting hobby. Henri David Jr., a retired corporate banker in Old Saybrook, Conn., races his 1949 Hillegass Sprint Racer in classic car races at Lime Rock Park in Connecticut.

“In top gear, the engine hits 4,000 r.p.m.’s, which is about 100 miles per hour,” Mr. David, 72, said. To race, he has to don a helmet and goggles and strap himself into the open driver’s seat — something he happily demonstrated at the Greenwich show.

Collecting at this level is also intensely social — something that makes it more expensive still. Mr. Marano said he liked to go to the Pebble Beach Concours d’Élégance each year but it cost him at least $12,000 to send one of his cars to the show — and that was if nothing went wrong.

Mr. Ziegler, who just returned from a car show in Monaco, said the racing and even the driving of these cars made it difficult to treat them like regular collectibles.

If they are being driven, they also are taxed at the higher ordinary income tax rate when they’re sold, not the collectible rate like a piece of art. But the biggest issue is what a collection is worth, for both insurance and estate planning. “You’d be shocked to know the people who have owned these cars for 10 years and have them woefully underinsured and don’t know the value of them,” Mr. Ziegler said.

And then, you have to figure out what to do with them. Nancy LeMay’s husband, Harold, had collected more than 3,300 cars by the time he died in 2000. (It was later winnowed to 1,500 or so.) She said the couple started a museum in 1998 because they had to figure out what to do with so many cars. “If we divided our cars up, each of our kids would have had 500, so that was unreasonable,” she said.

But it took 12 years and $65 million from fund-raising to create LeMay-America’s Car Museum, which opened last weekend in Tacoma, Wash. David Madeira, chief executive and president of the museum, estimated that the LeMay collection was worth $100 million today and said that 770 of the cars were destined for the museum. That still leaves the fate of hundreds of cars to sort out.

While this certainly shows the investment potential of cars, it also shows the big downside of collections: what do you do with them when you’re gone?

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