Bugattis Sell for `Crazy Money’ as Classic Cars Beat S&P 500
Peter Mullin, owner of one of the world’s largest private collections of classic French automobiles, points to a 1935 Hispano-Suiza J12 Cabriolet sitting among 60 other cars in his museum in Southern California.
“This is the finest car ever made,” Mullin says. “At 100 miles an hour, you couldn’t even tell the engine was on.”
The collector is just warming up at his Oxnard-based Mullin Automotive Museum, which was designed to evoke a 1930s art deco auto salon in Paris. He caresses the swooping fender of a red-and-black 1938 Bugatti Type 57C Atalante coupe, designed by the company founder’s son, Jean Bugatti, Bloomberg Markets magazine reports in its October issue.
“I love all the French cars, but Bugatti is my favorite among favorites,” Mullin says. “It’s the ultimate car in engineering, design, performance.”
The museum’s creme de la creme spins on a pedestal in the middle of the 46,800-square-foot (4,300-square-meter) building. In May, an anonymous buyer paid more than $30 million for this 1936 Bugatti Type 57SC Atlantic, a silver-blue coupe with a raised spine that runs the length of the car. Mullin declined to comment on media reports that he was the buyer.
It’s the highest price ever paid for a car, topping the old record by about $2 million. The same Bugatti sold in 1971 for $59,000.
Mullin belongs to a small club of about 100 collectors worldwide with the money to buy the most expensive classics, Geneva-based classic car adviser and broker Simon Kidston says.
Rich collectors are an eclectic lot, from comedian Jerry Seinfeld, who collects Porsches and who appeared in a 30-minute cable program extolling the brand; to Jim Glickenhaus, a Wall Street investor who covets Ferraris; to U.K. television and radio host Chris Evans, who paid $10.9 million in 2008 for a 1961 Ferrari 250 GT SWB California Spyder once owned by Hollywood actor James Coburn.
A semi-retired founder of a Los Angeles executive-benefits-consulting and asset-management firm, Mullin, 69, began buying vintage cars in 1981. He now has 140.
“It starts with an interest, turns to passion, then migrates to obsession,” says the chairman of Portland, Oregon-based M Financial Group.
Collectors are pumping money into the classic-car market like never before, driving up prices for the world’s most famous models of Bugattis, Ferraris, Mercedes-Benzes and Rolls-Royces. Enthusiasts are bewitched by their curvaceous bodies; handcrafted leather stitching; racing prowess, with 200-plus-horsepower engines; famous owners; and even their possible investment value.
Seeking Hard Assets
Today, with the stock market in the doldrums, investors seeking hard assets are turning to vintage cars -- often for more than $1 million, says Keith Martin, publisher of Sports Car Market magazine in Portland.
“At the moment, important cars are making crazy money,” he says. “Baby boomers still have all the money. Half of them are saying, ‘I always wanted a Ferrari SWB.’”
Mullin’s love affair with French cars began the moment he first saw one in 1980. A photographer used Mullin’s Paul Williams-designed colonial home as a backdrop for a photo of a 1948 Delahaye 135 MS for a vintage-car calendar. The Delahaye -- with its fenders shaped like long teardrops and chrome grille, headlights and rope-thin bumper -- changed Mullin’s life.
“It was the most gorgeous piece of art, sculpture, engineering and performance I had ever seen,” Mullin says. “I knew virtually nothing about French cars, but I was stunned.” And hooked. One year later, he bought his first classic, a 1948 Talbot Lago T26 Record. He later took up racing, most recently competing in the Rolex Monterey Motorsports Reunion in Salinas, California, in August.
Bugattis, along with Ferraris and Mercedes-Benzes, are the most coveted of the collectibles, based on auction prices. Now made by Volkswagen AG (VOW), Bugattis were originally manufactured more than a century ago by Italian engineer Ettore Bugatti in Molsheim, France. He pushed innovations, such as the use of lightweight magnesium and aerodynamics, in his handcrafted cars.
By the 1920s, Bugatti was making luxury touring cruisers with muscular engines. Auctioned for $1.1 million in March, the black 1932 Bugatti Type 50 Drop Head Coupe features a long hood housing an eight-cylinder, 360-hp engine capable of speeds up to 115 miles (185 kilometers) per hour.
The Bugatti 57SC Atlantic at Mullin’s museum is, for the moment, the world’s most valuable car because only three were made, and only two of them are known to still be intact. The other one is owned by fashion designer Ralph Lauren, who displayed some of his Bugattis, Jaguars and Porsches at Boston’s Museum of Fine Arts in 2005.
An Illiquid Market
Collectors who buy vintage cars for money, not just for love, face many risks in making a profit. In the opaque and illiquid classics market, they struggle with everything from determining a fair price and finding a buyer to ensuring a seller isn’t passing off a heavily repaired model as an original, says Glickenhaus, general partner at New York investment firm Glickenhaus & Co., which manages $1.3 billion.
Consider the price swings for Ferrari 250 GTE four seaters from the early 1960s. In 1990, the cars were selling for as much as $250,000, up from $30,000 to $40,000 three years earlier, publisher Martin says. The price swooned to as low as $50,000 before recovering to $100,000 in the past few years.
“There is a huge business in buying and selling classic cars, and these guys will tell you whatever you want to hear,” says Glickenhaus, whose collection includes seven Ferraris. “To the average person, it is not a good investment.”
Cars Outperformed Stocks
Collectible cars have outperformed stocks, at least in the past four years, according to the Hagerty’s Cars That Matter “Blue Chip” Index, compiled by auto appraiser David Kinney of Great Falls, Virginia. The index, which contains the estimated values of 25 of the most popular collectible autos, increased more than 61 percent from September 2006, when it started, to the end of July.
That compares with a 16 percent loss in the Standard & Poor’s 500 Index. (SPX) The 1958 Ferrari 250 GT California Spyder LWB gained 131 percent in that period to an estimated value of $3.3 million, according to the HCTM index.
Glickenhaus’s zeal for cars dates back to his childhood in the 1950s, inspired by the “See the USA in Your Chevrolet” jingle that glamorized the open road. As a teenager, he was already ogling Ferraris. In 1967, he told his father, Seth, who founded Glickenhaus & Co., to buy an $8,000 Ferrari 330 LMB because it was the perfect vehicle to be driven to school in.
Jim says Seth, now 96 years old and still working as the senior partner at the firm, has been skeptical of his devotion to cars ever since.
$1.1 Million Ferrari Enzo
“Today, that car is worth $12 million,” says Glickenhaus, who had a short-lived Hollywood career producing movies such as “Frankenhooker”, about a monster made from parts of prostitutes. “Every time I point it out to him, he says anything you bought in 1967 would go up.”
Jim Glickenhaus, 60, became legendary among collectors for rebuilding a new $1.1 million Ferrari Enzo because he said the design of the brand, owned by Fiat SpA (F), had deteriorated. The investor spent another $3.2 million to strip down the car and, with the help of Italian firm Pininfarina SpA (PINF), remake it with about 200 new custom parts, including a carbon-fiber body and seats designed to fit Glickenhaus’s shape.
Glickenhaus unveiled his more ferocious-looking Ferrari in 2006 at the Concours d’Elegance car show at Pebble Beach golf course, which hosted the 2010 U.S. Open. Videos were posted on YouTube of Glickenhaus standing by his creation as a drape covering it is removed in front of a large crowd.
Building a Racing Version
He also renamed the car the Ferrari P4/5 in honor of the company’s famous P4 race cars from 1967. He’s now building a racing version of the car.
“Initially, the idea was so outlandish that someone would take the ultimate Ferrari and deconstruct it,” Glickenhaus says. “Everyone was sure this would be a disaster. It would not amaze me if, in 50 years, the P4/5 goes for $100 million.”
The Tonight Show host Jay Leno, who enjoys cruising the streets of Los Angeles in one of his 110 vintage cars and 90 motorcycles, is steadily adding to his inventory. It now occupies three former airplane hangars, one of which includes car lifts for repairs. Rather than buying vehicles in mint condition, Leno says he likes to take on broken-down classics and restore them.
He has a 1967 Lamborghini Miura P400 once owned by crooner Dean Martin’s son, Dino. A friend of Leno’s who figured the car would cost more to fix than it was worth all but gave it to the entertainer in the early 1980s. Leno spent several thousand dollars to repair it and says similar Lamborghinis recently sold for $600,000 to $700,000.
Counterweight to Hollywood
Collecting provides Leno, 60, a counterweight to the uncertainty of being an entertainer in Hollywood, where poor ratings can doom a career.
“When you work in show business, everything is subjective,” says Leno from his office on the NBC studio lot in Burbank, California. “But when you take something broken and fix it, no one can deny you didn’t make it run. No one can claim it’s not running.”
Leno says luck as much as savvy account for his occasional paper profit as a collector. In 1999, he bought a 1994 McLaren F1 sports car for $800,000, the most he’d ever paid at the time for an auto in his collection. He saw a similar car sell at auction last year for $4.3 million.
‘I Never Sell’
“That’s a pretty good investment for 10 years,” says Leno, who according to the Hollywood Reporter earns about $20 million a year. But he doesn’t plan on reaping that profit anytime soon. “I never sell,” he says. “God no. I don’t want to. I enjoy each one.”
At a Barrett-Jackson Auction Co. event in June, collectors trade cars in a carnival-like atmosphere. During the auction at the OC Fair & Event Center in Costa Mesa, California, so-called ring men dressed in sports jackets holler and wave their arms among the audience of bidders, trying to whip up a frenzy. Women in short skirts hand out drinks on trays as a procession of Chevys, Fords and Pontiacs crosses the stage.
A 1970 Plymouth Road Runner that appeared in “The Fast and the Furious” movies goes for $187,000.
The auction site is Barrett-Jackson’s fourth and newest location, a sign of the expanding market for classic muscle cars. Some 58,000 people attended the three-day event, which was broadcast live on News Corp. (MWS)’s Speed Channel cable network.
‘Parking Their Money’
“We’re seeing more and more people who want the car they wanted as a kid,” says Steve Davis, Barrett-Jackson’s president, en route to his customary spot on the podium behind the auctioneer. “Now, because their portfolios have been impacted, they’re parking their money in something that has value and that they can also touch.”
Gooding & Co. auctions are more sedate affairs catering to wealthy collectors. At the Pebble Beach Concours d’Elegance show, Gooding’s auctions are held under white tents and chandeliers. They feature polished and restored Rolls-Royces and Duesenbergs, displayed in thick, glossy catalogs with lengthy histories on each offering.
David Gooding, who managed auto auctions at Christie’s International before starting his company in 2003, expects to sell as much as $150 million in cars this year, up from $25 million in his first year.
“More of my new clients are saying they want a car they can drive instead of a painting on the wall,” says Gooding, whose Santa Monica, California-based company handled the private sale of the $30 million Bugatti 57SC. “We really wanted to be selective and take the best of the best.”
Pricing Is Hard
The challenge for collectors is determining the value of classic cars in a market where pricing is hard to find. As Dietrich Hatlapa in London built a small collection, including a 1973 Porsche 911 Carrera RS 2.7 and a 1960 Porsche RS 60 Spyder racer, he was struck by the large amounts of money that buyers were paying for classics without having market data to support the prices.
“People are paying millions of dollars for a car, while at the same time there is still a seriously opaque market,” says Hatlapa, who starting buying vintage sports cars for the fun of driving them on a track or the open road.
Hatlapa, who had been a managing director at Baring Securities and head of an equity sales team at Macquarie Bank Ltd. (MQG), wanted to use his experience to bring more transparency to the classic car market. So, in 2008, he founded Historic Automobile Group International. He and a few fellow collectors began by gathering price data from private sales, dealers and auctions.
“We started out as enthusiasts who wanted to find out what actually happened, not really with a business idea, but more to shed some light on an area we’re interested in,” Hatlapa says. Today, HAGI has a proprietary database of about 100,000 transactions.
Hatlapa, 46, also worked with Bruce Johnson, another former Baring Securities executive, to produce four car indexes, including a total market index that measures the worth of 18,000 collectible cars with a total value of about $8.2 billion.
Johnson, 63, now an independent hedge fund consultant in San Francisco, was Baring’s head of global research and the creator of some of the earliest emerging-market indexes for China, Colombia, India and Poland beginning in 1992. Johnson says that just as the Baring indexes helped provide a performance barometer for previously opaque emerging countries, the auto indexes will help fuel growth in that market.
“We want to create some of the initial infrastructure for an investors’ market,” he says.
Unearthing a Gem
The HAGI Top Index, which tracks Mercedes-Benzes, Ferraris, Porsches and other popular collector cars, was down about 1.7 percent this year through July compared with a 1.2 percent decline in the S&P 500.
With limited pricing data, collectors sometimes hunt for dilapidated cars, hoping to unearth a forgotten gem. In 2002, Glickenhaus, the fund company executive, says he bought a 1967 Ferrari 330 P3/4 chassis and boxes of its parts from an owner in London, paying a total of about $1 million for the car and its restoration.
Glickenhaus says he then investigated the car’s history and was thrilled to find that he had bought the famous chassis belonging to a long-lost car that won the 1967 24 Hours of Daytona race. He values the legendary Ferrari at as much as $6 million.
“I like the story of finding things in the garbage,” he says.
Million Franc Delahaye
In deciding how much he’ll pay, Mullin, the museum owner, places a premium on the car’s famous history. A few years ago, he picked up the Million Franc Prize 1937 Delahaye Type 145 Grand Prix. That year, the French government offered a million francs to any French-made auto that broke the 1934 speed record set by an Italian Alfa Romeo. The Delahaye took the prize.
And in January, Mullin paid more than $368,000 for a very rusty Bugatti after it was lifted from Lake Maggiore on the Swiss-Italian border. After the car’s owner failed to pay customs fees, it was pushed into the lake in 1936 by Swiss officials. For decades, collectors mused about the underwater Bugatti and wondered whether the story was true until divers actually found it in 1967 and retrieved it last year.
“Think about it as art, not as a car,” Mullin says. “It’s like finding a great piece of Greek sculpture at the bottom of the ocean. Except Bugatti started this art and nature finished it off.” Rather than restoring it, Mullin displays the Bugatti with all of its blemishes under spotlights in his museum.
Bugatti Road Rally
Mullin, Glickenhaus and other collectors flocked to the Pebble Beach car show in August, where Gooding auctioned 106 cars for $64.6 million. After the event, Mullin joined a seven-day road rally of more than 80 Bugattis.
They headed north over the Golden Gate Bridge and then south down the Pacific Coast Highway to Big Sur and the Hearst Castle before arriving at Mullin’s museum. There, on Aug. 21, he hosted a reception for the collectors to celebrate the 50th anniversary of the American Bugatti Club.
For Mullin, driving and admiring his French cars is the sweetest return of all.
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