RARELY DISCUSSED - THE ATTRITION RATE OF CLASSIC CARS
There are three main questions to consider:
- What is the attrition rate of collectible vehicles?
- What effects will attrition introduce into the market?
- How will these conditions affect market participants?
CAN A FACTUAL ATTRITION RATE OF CLASSICS BE ESTABLISHED?
Based on current conditions, no. First, as virtually all information regarding Classics reside within a state of hyper-fragmentation, a factual rate of attrition cannot be determined. Second, as with newer cars, the scope of attrition must include all Classics, not just those adequately preserved or restored to make them driveable. Is it possible to estimate? Yes, but for the previous reasons, the results remain significantly inaccurate.
EXCEPTIONS TO "THE RULE"
Are extremely limited. When the quantity of select vehicles reaches a certain point, all known examples are accounted for and the attrition rate is zero. A secondary tier of vehicles include Classics with traceable heritage, such as Ferrari, or highly documented examples of exceptional provenance, regardless of the remaining number of "common examples". These are vehicles typically have a near zero rate of attrition and are found in museums or tightly controlled collections. Yet sometimes they are FOOLISHLY subjected to less than judicious use.
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(L - R) Stirling Moss' $30.5M Aston Martin collides with a '50's Austin Healy and Jaguar XK Oct 5, 2015 - Telegraph UK |
We located information within a variety of research papers an/or quality individual efforts to develop a reasonable formula of attrition for both new and Classic cars, but the overriding general points remain the same since the very first automobile was put into use;
- When the cost to maintain a vehicle exceeds it's realizable value, it is scrapped.
- When the demand for reusable parts combined with their value and cost to store/retain a vehicle falls below the realizable salvage value, the vehicle will be crushed and recycled.
- When the demand and rarity of a vehicle and its parts exceeds common availability, the scrappage rate declines precipitously while the vehicles and parts that remain appreciate in value.
Lifespan is expressed as the age of a vehicle when the realizable value is equal to or falls below the cost to maintain. It triggers peak scrappage rates. What the scrappage curve does not account for is the remaining vehicles experience greater value and longer lifespan, as represented by the inverse curve (in green) above.
WHAT DOES SCRAPPAGE MEAN?
There are two basic forms of scrappage. The first applies to excessively damaged cars. Other than the removal of select parts, the vehicle is crushed and recycled.
The second applies to vehicles which, as described above, have simply exceeded their lifespan, but retain a large quantity of reusable parts and/or are in high demand. These remain as salvage vehicles until the realizable value falls below both demand and profit potential. Therefore a similar, although different, bell curve can be applied to scrapped vehicles, including parts.
The difference is at a point in time, the effects of demand and low quantity reverse the trend lines, as shown in the above diagram.
APPLICATION OF THE THEOREM WITH REGARD TO AGING THOUGH NOT YET COLLECTIBLE CARS
Based on available information, these two curves could be linked to represent a fixed period of time between new and aged. Depending on a number of factors, the chain could repeat itself until one of two outcomes has been established:
- There are no vehicles remaining or the remaining vehicles have so little demand, all appreciable value has been erased.
- A limited number of vehicles remain, there is high demand and they have achieved status as an appreciable asset.
Up Next - Working Out Possible Attrition Rates of Classics