This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 4 - 10, 2016.

The global economic headwinds have affected the local classic car market quite badly. This makes it a good time to buy classic cars, says Ong Kheng Liat, founder of Kuala Lumpur and Temasek Classic Automobiles (KLT Classics).

“Last year, the domestic classic car market performed very poorly, mainly due to the negative market sentiment stemming from the weakening ringgit and implementation of the Goods and Services Tax [in April],” he says.

As collecting classic cars is seen more as a hobby than an investment by high-net-worth individuals, these collectors have chosen to hold back on their purchases amid the market downturn. “They are probably holding back on purchases. Classic cars are viewed more as a hobby. They are not meant to be used on a regular basis,” says Ong.

“It is also a very emotional decision, unlike buying stocks, where you can analyse and assess their value and sell them when you want. When you don’t feel happy about the economy and business environment, you tend to hold back on all purchases.”

Ong, who had been in the financial industry for more than 20 years, started KLT Classics with a few partners in July last year. The company sold several cars last year, including a 1971 Mercedes-Benz 560 SEC, 1969 MG MGB, 1983 Ferrari 512 BBi and 1984 Mercedes-Benz G-Class. 

He says he is satisfied with its sales so far as the company is a new player in the industry. “I think it is very good for us as a start-up company without a track record.” 

Ong would not disclose the transacted prices of the cars, but did say that they were on par with international auction prices.

Good time to buy

This could be a good time for collectors to look at the cars they like and buy them at attractive prices, says Ong. The cars could also be viewed as a good long-term investment.

“In general, classic car prices have appreciated about 20% per annum in the past five years. The Mercedes-Benz Gullwing is an example,” he says. 

“I think buying classic cars is not just about investment value but is more of a hobby. The investment side is more of a bonus. However, the Knight Frank [Luxury Investment Index] and Hagerty index show that classic cars have the best performance out of all the alternative asset classes. It is fantastic, looking at the returns.”

The Knight Frank Luxury Investment Index 2015, which tracks the performance of a theoretical basket of selected collectible asset classes, shows that the returns of classic cars were 487% over a 10-year period (2004 to 2014).

Classic cars have continued to top the index by outperforming other alternative asset classes such as art, wine, coins, stamps, jewellery, coloured diamonds, Chinese ceramics, watches and furniture. Art and wine were the second and third best performers on the index, seeing returns of 252% and 232% over the 10-year period.

The Hagerty Market Rating, which is a famous valuation tool used to measure the value of classic cars in North America, is up 0.05 points at 69.87 this month after one of the largest month-on-month declines in the past three months. The index stood at 71.18 points in November last year. 

“Auction activity increased again this month. Foreign cars from the 1980s performed the strongest. But the front runners weren’t models from Porsche and Ferrari. Rather, BMW, Jaguar and Mercedes all posted gains in average sales prices of at least 40%,” the report says.

“After a big drop last month, private sales activity has essentially remained flat. There were increases in the average prices of modern classics, but these were offset by decreases for cars from the 1930s and 1950s.” 

The plateauing of classic car prices in general is not a bad thing as they had been trending up over the past 10 years, says Ong. “I think it is very healthy. It means that classic cars are behaving like an asset class. Some financial markets move up very quickly before there is a correction [just like what the classic car market is experiencing now]. It will eventually go up again,” he adds.

“This year, I think the market presents an opportunity for most people [classic car collectors] because prices have plateaued. So, buyers [like us] can source for and purchase cars at lower prices.”

Deals and trends

Despite the correction in the classic car market, certain models remain popular at notable auctions in the US and Europe. These auctions include the Arizona and Pebble Beach auctions in the US and the Retromobile in Paris. 

There are also local auctions that collectors can look forward to. A notable event is the annual Asia Klasika Motor Festival in Kuala Lumpur. Car prices are based on a 100-point valuation system that takes into account the various parts of the car. This system provides some transparency when collectors are evaluating the cars. 

“The Mercedes-Benz remains very popular, both locally and internationally … so are Jaguar, MG, Mini (Cooper), Ferrari and Porsche. These are the brands that collectors like,” says Ong.

However, the younger generation of car collectors seem to have a preference for Japanese models as these are the cars they have grown up with. “I have increasingly noticed that Japanese classic cars are becoming more popular. There is a perception that Japanese cars are mass-produced, but this does not apply to all models. For instance, the Nissan Skyline GT-R 32 has increased in value. It was sold for US$80,000 at the Arizona auction [in January to an American collector], which is a record for this model. It is a right-hand drive car, which US manufacturers do not produce. It shows that Americans are beginning to collect Japanese cars,” he says.

“This trend is happening because car buyers and collectors are getting younger and younger. Japanese sports cars have been a part of their life. These cars began to be exported globally in the 1980s and 1990s. Moreover, Japanese cars tend to be featured in movies. So, these collectors relate less to British classic cars.”

Ong says there is currently a 1989 Nissan Skyline GT-R 32 and 1985 Toyota Celica Supra on sale at his showroom. Other cars on sale include a 1958 Porsche 356 A Speedster RHD, 1967 Austin Healey BJ8 3000 Phase 3, 1974 Alfa Romeo Montreal, 1987 Porsche 928 S4 and several models of Mercedes Benz, according to the company’s website. 

These cars are chosen by Ong based on his observations of global trends. “I watch the trends in the international marketplace and auctions very carefully. Over the years, I have also established contacts with dealers around the world and keep in touch with them,” he says. 

Ong’s advice to collectors is to always buy cars in the best condition irrespective of the make or model. That is because buying a classic car is an emotional move. The value of the car is determined more by its original parts if it is sold in the future. 

“The motor parts do not need to be 100% original as some parts can be quite hard to source. But make sure the car is not rusty, the paintwork is good and the interior parts, such as the seats, carpet and dashboard, stay the same — have no cracks and have not been modified much,” he says. 

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