Published September 4, 2013, Los Angeles Daily Journal – If the U.S. economy has been suffering through a great recession the last five years, the automotive industry has been in a downright depression. In the mid-2000s, U.S. auto sales were bristling at 17 million new car sales per year – a pace that put us on track for a historic 20 million sales by 2013.
Yet in 2008, we learned just how fragile an economy can be, as we watched the 110-year-old Lehman Brothers topple into bankruptcy, taking with it the fortunes of many. The year following the Lehman collapse, the automobile industry slid into the abyss, with U.S. sales plummeting to 10 million – the same number of vehicles sold in 1968, when our population was just a tick over 200 million. All that had been taken for granted for generations was suddenly lost, as manufacturers once thought invincible confessed to the world that they were now insolvent.
The health of the auto industry is a concern to all, as it serves not only as a leading indicator of things to come, but our economy could not rebound without it. One out of every ten people in the workforce is employed by the automotive industry, making the sector the most significant contributor to the nation’s welfare. The industry supports everyone from factory workers and parts manufacturers to dealerships and classic car restorers. Consider that in California alone, new car dealers generate just shy of $100 billion in annual sales, and they are responsible for 9 percent of the state’s sales tax.
As bleak as the last five years have been, economist are finally beginning to celebrate the industry’s recovery. While we have yet to return to pre-recession numbers, light vehicle sales are expected to surpass 15 million units this year, with predictions of 17.5 million by 2016. And the companies who made it through the fog of the last five years have emerged healthier and stronger than ever. The Detroit Three have returned to profitability, and the shakeup has made room for new entrants, such as electric car manufacturer Tesla whose stock recently surged past $170 per share.
While the rebounding sales numbers are impressive, it is increased consumer confidence that is the greatest achievement to report. Public dealer groups, such as AutoNation and Sonic, are again on buying sprees, competing with each other as they acquire private dealerships, and retail buyers are feeling bullish about being able to support the payments that are attached to a new vehicle purchase.
AutoNation, the largest dealership group in the nation, reported that its 2013 first-quarter revenue rose 12 percent to $4.1 billion. Michael Jackson, the company’s CEO, stated that he expects business to remain strong, driven by accelerated product launches, continued replacement demand and robust availability of consumer credit. “We are at the beginning of a broad-based recovery for the economy and auto retail,” Jackson said.
And if the retail side of the industry has seen a return of confident buyers, the classic car industry has just exploded with enthusiasm. Classic car sales reveal much about the state of the economy and the direction it is heading. With their million dollar price tags, classic cars attract financial moguls who tend to be smart with their dollars; few people who have had the wherewithal to accumulate a fortune are willing to risk it in uncertain times.
So it was quite a thing last month, when the annual gathering of collector car auctions at Pebble Beach reported that they sold a $307 million of collector cars in the three day event. The highlight of the show was a 1967 Ferrari 275 GTB that sold at the RM auction for $27.5 million, wildly surpassing predictions of what the car would bring.
Yet the 1967 Ferrari is as famous for what it is not, as for what it is. As crazy as it is, the $27.5 million car is not the most expensive car ever sold – that distinction goes to a 1962 Ferrari 250 GTO that sold 3 months ago for $35 million in a private transaction; nor is it the most expensive car ever sold at an auction – that would be a 1954 Mercedes Benz Formula One race car that sold in July for $29.6 million.
According to Hagerty, the collectible-car insurer and valuation firm, the average price of collectible Ferraris has increased 70 percent since 2010, with the average price at $2.6 million. And the values appear to be increasing. Last month, an owner of another 1962 Ferrari 250 GTO turned down an all cash offer to sell the car for $45 million, speculating that the price for the famed Ferrari will soon reach $50 million. Not bad for a car that had an original price of $6,000.
What is most rousing about the activity in the classic car market is that the only thing that is actually being traded is confidence. In truth, the assets themselves are little more than used cars with little value other than their rarity and pedigree. The only reason to throw crazy money at the cars is the confidence that another smart, wealthy person will find it wise to risk even more of their fortune for the same asset.
Case in point, the 1962 Ferrari 250 GTO that was recently sold for $35 million was purchased at auction a decade ago for $9 million; and it is this very car that industry experts are now thinking will broach the $50 million barrier. And it is this that speaks volumes about the state of our economy and times that are yet to come.
For a nation that has seen the toughest times in generations, the recovery of the automotive sector is a relief to all. Plants will soon be buzzing at capacity and dealerships will see a return of flush times – and we will all rejoice the good fortune that will befall our shattered economy. For a nation that has been through a nuclear winter, it just may be time to pop the champagne and finally have something to celebrate.
