Show Me The Money - Are you Buying or Selling?

THE ECONOMICS OF VEHICLE VALUES

Guest contributor: Bryan Shook
As longtime readers know, values for classic cars continues to rise. And while 98%+ of all classic cars available today will likely never break the multi-million dollar price point, even the basic daily driver we cherish increased in value yet remains "affordable". And when buying or selling a classic automobile, both parties have the goal of achieving the best possible price point they can - and that is how is should be.  
 
Due to his experience and devotion to the automotive enthusiast, we sought Garagistry Advisor, Bryan Shook's qualified opinion on what are the key factors determining optimum value for a classic car. The following is a composite of the details. 
 
The value of a Classic car or a collector vehicle is currently driven by three key factors: 

• Desirability
• Pedigree and Provenance
• Condition 

The one missing is "quality". Therefore only three of the four factors create an equation which supposedly and eventually leads to the value of a vehicle. The weight to be assigned to any of the factors is subjectively based upon the influence of any one factor has over another. Therefore, there are numerous variables. Let's take a closer look them.

Desirability

Although this is a subjective measure, it is fairly easy to quantify. A desirable vehicle is one that nearly anyone would love to own. Also, vehicles that were produced in limited quantities or with attributes or options not commonly found on contemporaneous models are desirable. Exotic vehicles are usually desirable on their name alone. Finally, some vehicles are desirable simply because they are cool. 
 
While every vehicle could be desirable to a collector on some level (yes, even a Yugo could desirable if you can find a complete, unrestored running example...), the level of desirability will impact the value. The more people who like the vehicle; the more desirable the vehicle is. Specific years, models, or options can also make an otherwise not so desirable vehicle desirable for the purpose of valuation.
 
Pedigree and Provenance:
This is what most Classic vehicles lack and although pedigree and provenance have similar definitions, they are different.

Pedigree:
While desirability drives one aspect of the pricing structure pedigree can completely sway the equation. Webster's defines pedigree as "a distinguished ancestry". A fitting example is a Duesenberg. In almost any condition or level of provenance (see below), a Duesenberg will ALWAYS command a relatively high value based purely on its highly regarded desirability and relatively low production numbers. There are numerous other examples, regardless of age or origin.

Provenance:

Webster's defines provenance as "the history of ownership". Vehicles with a fully recorded and uninterrupted chain of ownership meet Webster's tight definition of provenance. By and large, information about a vehicle's origin was not something well recorded when the vehicles were sold, "back in the day", so it is rare to come across a vehicle with these records. 

But provenance has many varying degrees. It is also defined as "the earliest known history of something" and "the beginning of something's existence". Therefore a Classic with some provenance is better than none. Owners who take the time to gather, organize and protect items regarding the partial provenance of their Classic can increase the desirability of their car.

Items that add provenance include copies of old titles, registration paperwork, original sales forms, window stickers, build sheets, factory documentation and other certification. It also includes photos and stories associated with the car and its owners. Time has a way of erasing memories. Stories are more important than most owners realize. They add "color" to the history of the car to personalize the otherwise sterile pile of records and potentially increase desirability.

Vehicles once owned by movie stars, other public figures or are/were part of a highly regarded collection tend to be worth more than other similar vehicles even if they otherwise fall miserably short regarding pedigree and provenance. These same vehicles also tend to have more options or unique features which make them more desirable. 
 
Bottom line, a vehicle with either pedigree or provenance is worth more than a similar vehicle without either. For provenance to be given appropriate weight, it must be substantiated with documentation.
 
Condition:

This third and final factor is the "make it or break it" for most vehicles. Even if a vehicle has good desirability, and pedigree/provenance, it likely won't influence the value of the vehicle as much as the condition. A vehicle in superb original condition (i.e. extremely well-kept since new) or a vehicle which as been restored or built/rebuilt to an extremely high level is more more than a vehicle needing restoration or a similar vehicle in a deteriorated condition.

In recent years there has been a push to recognize vehicles in unrestored condition, yet relatively original. As the appreciation for these examples has risen, so has the weight assigned to originality with respect to valuation. Note: an overwhelming public appreciation for a particular vehicle or vehicle trait tends to also weigh heavily on desirability. The more original a vehicle or the better the restoration of the vehicle, the more the vehicle is worth - period!
 
Although the equation into which these three areas are plugged is somewhat objective on its face, the weight assigned to any one area is subjectively based upon the knowledge, expertise, and experience of the person assigning the value.

Any logical attempt to confidently assign a fixed weight to any of these three areas would be illogical. There are far too many vehicles with far too many options, characteristics, stories and degrees of condition to allow for such a rigid valuation method. 

Each vehicle must be evaluated first on it's own merits then against similar vehicles with known sales to find a comparable sale. Then the comparable sale must be evaluated to see how closely they match the subject vehicle. The closer to the comparable sale, the closer our estimate of value to the actual value of the subject vehicle.

You must however, keep in mind some principles of economics such as market saturation versus scarcity, preferences and rationality (i.e. marginal cost versus marginal benefit) are at work.
 
This theoretical approach to the economics of car valuation should provide you with an understanding of why one vehicle is worth so much more than another. The equation described here should be viewed as a template which along with the expertise of an seasoned professional, will likely allow you to confidently arrive at a value for your particular automobile.

The Missing Component

Is quality. Every owner, seller and buyer needs to define the quality component of their Classic in order to set value, but this component is grossly overlooked. The result is thousands of Classics become valued and sold far below actual replacement value. Why, remains the question all should ask. Are you really ready to pass on your Classic for 50% of what it cost to restore it, simply because "the market" is unwilling to recognize quality?   


So, What Can You Do?
That your classic car is influenced by each of these four factors is your reality. As Bryan described, the question of desirability may be beyond your ability to have a major influence upon. But don't think you don't have the possibility of having a major impact on the condition or pedigree / provenance of your classic - you can!
 
Condition is a reflection on how well we maintain and care for our classic vehicles. No one can force you to perform needed or preventive maintenance or a restoration on your vehicle, but the future value of your investment is yours to grow.  
 
A phrase often heard is "each generation believes history started on the day of their birth". And while it has some individual truth, it also shows how easily some can disregard the knowledge of what happened the day before their birth. Even if you have limited (or no) pedigree information or provenance for your classic vehicle, today is the day you can create one for your vehicle's forever future.

 
If you have already created your personal Garagistry account, use it to record each and every bit of information you can for your classic. Remember, you and only you have access to your personal vehicle data. Aside from a basic vehicle overview, shared photos and published entries, no personal information or detailed vehicles records are accessible by anyone else.
 
Our next installment from Bryan will have him explain the importance of having documentation. Whether looking to buy or sell a car, it is critical to provide a comprehensive record of your vehicle (at least since you have owned it).

Safe driving - enjoy your classic every day and every way....

Bryan W. Shook is an attorney who has devoted a large portion of his legal practice to helping other collectors and hobbyists understand today's market and protect their automotive investment. He is available anywhere for consultation, advice and information pertaining to automotive collectible litigation. he can be reached at BShook@dplglaw.com or 717-975-9446.