Farago: Monterey Car Week Bloodbath?

The Monterey Car Week Auctions Could Bring in a Record $398 Million in Sales, the headline at The Robb Report proclaims. The operative word: “could.” Robb writer Basem Wasef is spinning Hagerty’s market analysis, ignoring the possibility that next week’s Monterey Car Week could be a bloodbath. Clicking on the source of Mr. Wasef’s pollyanna prognostication reveals that credible prospect . . .

The hot market could persist for another year or more. If there’s less agreement about values, a repeat of 2019 is possible, with total sales down by nearly one-third. A miss on total sales would likely cool the market, and the core Monterey auction offerings would be affected the most.

hagerty.com

Translation: if the market “cools” during Monterey, if buyers have “less agreement about values” (i.e., don’t buy cars at previously paid prices or at all), a “core offering” bought this year will be worth less next year. Hell, it’ll be worth less the following week. And continue on a downward trajectory.

Another data point: on August 11, dbusinessdaily.com announced Traverse City’s Hagerty Completes Acquisition of Broad Arrow Group for $64.8M. Broad Arrow is an auction house. In the run-up to Monterey, HagertyBroadArrow has every reason to soft-pedal its analysis. To pimp a positive outcome.

Which is exactly what everyone connected with the Monterey car auctions is busy doing (save buyers). Meanwhile, the market is already showing signs of a major correction. A mid-west Ferrari flipper told me she’s had zero interest in cars priced $150k – $200k. Another dealer told me sales of cars above $300k are comatose. If buyers balk in Monterey, B-list exotic and sports cars could shed 30 percent or more of their value. Just. Like. That.

It wouldn’t be much of a surprise to anyone reading between the lines, “[Hagerty’s] market rating has observed 15 straight months of gains through June,” Wasef writes. “The metric finally slipped a tad in July.” Wait. A “tad”? Let’s go to the tape – another Hagerty article published before the insurance giant bought Broad Arrow.

After 15 consecutive month’s of growth, the Hagerty Market Rating has finally reversed course, dropping 1.42 points in the last month. This is the largest drop since the start of the COVID shutdown in April 2020. Just like then, the drop was spurred on by macro-economic factors more than events within the collector car market itself, yet there are signs that the period of unprecedented appreciation are coming to a close.

Inflation is accelerating past classic car appreciation hagerty.com

How’s that for a red flag?

My take: the pandemic inflated the exotic and sports car market. Rich folks weren’t spending big bucks on travel, dining, luxury shopping or entertainment. Why not buy a toy with the “extra” cash? Now that those expenses are back and the economy is beset by inflation, the well-heeled amongst us are looking at a less bounteous balance sheet and an uncertain economic climate. The garage isn’t exactly empty. So . . . they’re done.

Not done forever. These are car addicts after all. But they’re doing what people with a finite amount of disposable income do when the future looks cloudy: they’re cutting back on extravagant expenses, waiting to see which way the wind blows.

Ah, but what of the car collectors at the top of the market, the multi-million dollar car buyers? What does a billionaire care about resale value? They’re motivated by ego, greed and unalloyed automotive mania. So the hammer prices for super-rare Ferraris and mind-blowing pre-War cars could hold steady or continue their ascent.

I’m dubious. Two days after publishing the previous article, Hagerty’s headline asked Can there be too much of a good thing? We’ll find out this year at Monterey. “Although the auction run lists are not yet final, the number of $1 million-and-up vehicles consigned to the auctions is likely to exceed prior years.”

All in, there are roughly 50 percent more cars on the block this year than last. Are sellers rushing to off-load vehicles ahead of a crash? Supply up, demand down?

If a boatload of cars fail to sell for more money than previously, or fail to sell, it will send a clear message to all and sundry: the party’s over. While the auction houses will reach deep into their bag of tricks to avoid the appearance of a burst bubble, the free market will have the last word.

I’m not the only one thinking the bottom is about to drop out of the pre-loved exotic and sports car market. Next week, we’ll know the score: prices paid, which cars didn’t sell and the games the auction houses play to hide the truth. We’ll be updating The Rienzi Report as the results roll in. Watch this space.