A Dearth of Value - The Ugly European Car Index
Part I
I have a weakness for funky, underpowered European sports cars. I don’t know why I’m drawn to these. It’s not a conscious choice; it probably stems from my natural aversion to things that are popular. (This particular trait - distaste for what is popular - could fill a book with ludicrously petty boycotts and aversions). I just can’t be interested in things that (seemingly) everyone else admires. Like with every trait, I don’t practice it with 100% devotion. For instance, there are many Ferrari’s that I would gladly receive as gifts and treasure (buying one is out of the question). On the other hand, reverting to type, give me a Corvette or a Tesla? I’d sell it in a heartbeat and buy something else.
Something like a Saab Sonett II, which originally came with a 2 stroke engine! Even when upgraded to the inline 3 cylinder engine, power was a meager 59 horsepower. But, still, look at that thing!
Another entry in the “I want to own a car that nobody cares about” story of my life is the Renault Dauphine. I first saw this car in the six part remake of the The Prisoner way back in 2009. In the show, the taxis of The Village are Renault Dauphines. It was love at first sight. I immediately looked them up and discovered that I had indeed found the lowest powered car in my ugly-cars-as-contrarianism play: this rear-engined French beauty put out 36 horsepower. 36!
Of course, if I’m being honest, I’d say that at least some of the appeal of these cars to me is that they are/were comparatively both unpopular and affordable. I always wanted to build a Ford GT kit car, but, well, supply and demand don’t work in my favor on that front. Unfortunately, any Dauphine or Sonett that ever popped up on my watch list was invariably too far gone: a total restoration project, which appeals to my imagination but surpasses my abilities. Plus, have you tried to find parts for a 1963 Renault Dauphine? Bottom line: I never purchased one of these dubious beauties. I figured time was on my side, though; who else would be interested in owning one of these things?
Well, this assessment was probably correct when I first made it in the early 2010s. These euros were humble and essentially ignored by collectors. If I saw restored examples at all, they were reasonably priced: a few thousand dollars. I would go huge chunks of time without being notified of new listings for these cars; sometimes years passed. Something happened though, as the 2010s pressed on and the 2020s dawned. The prices for all the cars I wanted to own began to increase. Slowly at first, but then faster and faster. Today, I regularly see fully restored Dauphines, Sonetts, and Anglias listed for sale. The prices are well beyond what they were in 2010.
A project Sonett, almost totally rusted out and with no title available recently sold for $2,500. Why? So it could be used for parts to restore other Sonetts, which will also sell for substantially more than they did ten years ago. While I was writing this note, I received an email with a Sonett II listed for sale; the opening bid is $6,000. It’s a complete project; there aren’t even any pictures of the engine! Still, if you compare these prices to the cost of better-known classic cars, like 1960s and 1970s Dodge, Ford, or Chevrolet models, then these uglies still seem affordable, and that’s a key point. I can see only three possibilities at play in the collectible car market as it relates to Ugly European Cars:
More people have suddenly fallen in love with weirdly curved or angled cars with zero power and legendary reliability issues
Those few people who genuinely love these models are suddenly flush with cash
Other collectors who are flush with cash have to put it to work somewhere, and they can’t afford their first choices
I doubt that there are a meaningful number of new admirers of these kind of cars. Especially given the rarity of parts and materials, I find it unlikely that droves of people have suddenly commenced Sonett, Dauphine, and Anglia restoration projects out of newfound love.
The second possibility can, of course, be true. There is a lot of money in circulation these days, so it’s somewhat likely that die-hard aficionados of under-powered European sports cars have more money to throw at these projects. After all, if I came into a chunk of money, I’d likely snap one of these cars up quickly, before my wife could ask too many questions. If this is true, the question becomes: are there enough existing collectors (who theoretically now have excess cash) to explain the increase in prices?
Suspecting that the answer is “no,” that takes us to the third option: car collectors in general, who are flush with cash, and who currently lack attractive opportunities to add to their collections with “traditional” collector cars have started buying up less desirable cars. These collectors would rather own Hemis, Mustangs, Trans-Ams, Corvettes, and the like. They probably already own some of these. The problem is, they are crazy expensive now. How expensive? Well, Chrysler Roadrunners with Hemi engines easily sell at over $100,000. Hemi 'Cudas are the same price level for the more mass-produced models. For the more “rare” 'Cudas, though, we’re talking millions of dollars for fully restored original vehicles.
Simply put, even the most passionate car collector would have trouble responsibly purchasing their favorite cars at these prices. But, given that these cars have appreciated so drastically over the last few decades, they need to buy and own some kind of car. Thus the money pouring into otherwise undesirable makes and models. I believe that kind of mentality is called reaching for yield.
Seriously, why have these assets increased so greatly in value? And, what’s the application to investing outside of the car market, say value investing in the stock market?
For one thing, I think the run-up in cars, coins, and art reflects the desperation to own hard, tangible assets that are not subject to the whims of central bank policy (or are at least thought to not be subject thereto). Can there be a cultural manifestation at work as well? Absolutely. In a digital age addicted to “content” consumption, there has been a cheapening of non-physical goods. Think about TV shows. Before the digitalization of entertainment, development of a show might take years before it actually began production. Then, seasons would be filmed and edited. Episodes were released one at a time, and fans ate it all up. Successful shows ran for many years, perhaps a decade. While ratings surely fluctuated between seasons and years, and advertising success varied, the TV show, considered as an “asset,” had a degree of substance, or reality to it. It had legs.
What about today? Today, entire seasons are “dumped” all at once. While this fosters binge-watching and short term buzz, it also paradoxically renders the “asset” valueless the moment all the episodes are out. All the time, talent, energy, and capital that went into old-school shows still go into modern ones, but it’s all spent and gone upon the first watching. Besides the fact that Netflix is culturally popular, this is the main reason why I don’t want to own it as an investor: their own success has rendered all of their assets essentially valueless. They must perpetually create the content that draws and keeps subscribers, but they never get to a point where it pays off in a leveragable way; it’s always time for the next season or show. It’s similar to Laurence Lafore’s point about Dreadnought class battleships in The Long Fuse: by building a class of battleships that were immensely superior to all previous battleships, Britain actually threatened their own naval supremacy. Now, a country didn’t have to spend a century building their fleet from the “ground up,” they just had to build more Dreadnought class battleships than anyone else in order to be the dominant sea power. And guess what, they all did, in an arms race that lead to World War I.
Multiply this fact across countless shows on a myriad of streaming services, a tidal wave of indie produced and self-released music, books, podcasts, blogs, vlogs, and whatever else, and you can’t escape the conclusion that none of it actually has any lasting meaning or value. (Obviously, money is made along the way, and much of this content may in fact be “profitable,” but it must be admitted that it’s not valued by the consumer in the same way as previously.)
How else can you explain the surge in interest and actual money exchanged for NFTs? The rush to create and own real estate in the Metaverse? It’s a mania for realness in the face of an endlessly substitutable and consumable sea of digital content. Is it any wonder that collectors are scooping up just about any old rust bucket they can get their hands on? After all, they’re not making any more Renault Dauphines.
In Part II, we’ll look at the investing climate in light of current valuations and speculations, and consider which kinds of assets generally benefit from value investing, and we’ll ask the key question, “Is there any value in the market today?”
Please let me know what you think of the newsletter. Even better - please let me know if you appreciate or own any of these Ugly European Cars!