Tuesday, December 2, 2008

David's Ferrari Pricing Index (DFPI)

Full disclosure.

I have no credibility when it comes to gauging the future prices of Ferraris. I make all this stuff up and as my track record clearly shows I thought it wise to purchase a Ferrari in December 2007, what is now acknowledged as the first month of our current recession.

How’s that for timing the market?

While it is difficult to determine selling price and the variables which affect asking (and selling) price, mainly detailed maintenance history, are not easily compared between individual cars I believe I would not be exaggerating by saying prices for starter Ferraris, 348s, 355s, and 360s, have fallen between 25% and 40% in the past 12 months. Where they will go from here is anyone’s guess. Nice 355s appear to be trading in the $55,000 to $70,000 range. Nice 360s appear to be trading in the $100,000 to $130,000 range. Certainly, there are incidences of nice cars trading for less than the low point of these ranges but it appears that well maintained cars still command a premium. They should. At these prices it does not take much for deferred maintenance to amount to 30% to 50% of the purchase price. While I expect the price of all starter Ferraris to continue downward I anticipate 360s trajectory to be the steepest. Not because they are bad cars but because there are, for Ferraris, quite a few of them. Currently there are 3 times as many 360s for sale on ebay as 355s. I would expect any 355s or 348s with questionable history to be difficult to give away.

This is not all doom and gloom.

While Ferraris are less liquid than equities the cars have held their value better than many stocks. I also bought GE (please feel free to ignore my investment advice as well) about this time last year for roughly $32.00 per share. That investment has fared about as well as my Ferrari purchase, a 355 is not an investment, when maintenance and depreciation is factored in. The difference – depreciating the Ferrari over the past year has been a heck of lot more fun than watching GE’s stock wither. What’s more the next year or so is going to present opportunities to pick up Ferraris and equities at depressed prices, assuming you have a firm constitution. This is not such a great thing if you have a Ferrari but I think starter cars, especially the sub $100,000 cars will not be too difficult to get rid of. Sure they will trade at a discount but it will be measured in thousands not tens or hundreds of thousands like Enzos, F40s, and other investment Ferraris. Times are not all bad for Ferrari owners either. If you are fortunate enough to be in a position to afford your car there are many interesting parts and pieces coming on the market at prices which look cheap compared to last year.

Wishful thinking?

Maybe. While I expect starter Ferraris to be easy to sell, relative to investment Ferraris, I don’t expect prices of 348s, 355s, or 360s to recover. I think the future will be characterized with much bigger price spreads among the cars with the average price well below the levels seen in mid 2007. If there is opportunity in the Ferrari market it will be for buyers of the investment quality Ferraris looking for a deal on an Enzo and for enthusiasts who wanted to buy but were always priced just out of the market. With 10 year old Ferraris commanding the same price as 2 year old Porsches the choice is easy for anyone with ears and eyes. Yes I know purchase price is only half the battle. All Ferraris come with a maintenance liability and the liability inherit with 355s and 360s is not so bad when you consider the $25,000 brake job your new 430 will need.

No comments: