Classic car auction of a Porsche Type 64 ends in farce
Chris Carter looks at what the botched sale of a 1939 Porsche Type 64 tells us about the classic car business.
"Forty million 40 million thank you. 40 million dollars at 40 at 500,000, 40 million 500,000. Now it is at 40 million five. Forty 50 million dollars!" The audience oohed and ahhed as Dutch auctioneer Maarten ten Holder called out the numbers. "Fifty million 500,000 now, 50 million five now, 60 million. At 60 million dollars" "Wow," cooed a man in the crowd. "Oh my God." The numbers on the giant screen flipped higher and higher. "Sixty million, 500,000 70 million." "What the heck?" The audience was in disbelief. They were witnessing the sale of the most expensive car in the world or at least they thought they were. Then came the farce. "At 17 million" The auctioneer turned to the phone bank. "It's 17, guys. It's a bit exciting to write seven zero. It might be my pronunciation." A woman groaned. "We're at 17 million dollars" The screen shows $17m (£14m). The crowd booed. People walked out of the room. So went the failed auction of a car (it didn't reach its reserve price) that was already controversial before it went under the hammer at RM Sotheby's in California last month.
A buyer for the 1939 Porsche Type 64 (pictured) had been sought for years. But in vain. Ferdinand Porsche had been commissioned to build it by the Nazis a decade before setting up the famous car company that still bears his name. It has a tiny Volkswagen engine. Some collectors regard it as a "true" Porsche. Others don't. But the car's history isn't the issue. "It has got a sewing-machine-sized engine at a fire-breathing Le Mans price," a source tells Hannah Elliott on Bloomberg. For such a hot-ticket item (the $20m reserve price is a lot of money even for a one-of-a-kind classic car), the fact that RM Sotheby's buried the lot at 362 in a line-up of 376 suggests the auction house wasn't very confident it would sell.
The crowd in an auction room is "often a boisterous one after a day of parties and events", says CNBC's Robert Frank. This one took place towards the end of a long night during a week-long car festival and the bidding began at $13m or $30m, depending on whom you believe. (Auctioneer Ten Holder has been accused of orchestrating the confusion to whip up excitement as has been pointed out, his pronunciation hasn't been a problem before.) RM Sotheby's says the confusion was in "no way intentional" and the result of an "unfortunate misunderstanding amplified by excitement in the room", CNBC reports. (You can watch the video at instagram.com/tv/B1TA6h0gqRK and decide for yourself.)
But there's more. Witnesses in the room deny people were bidding as the price started to rack up. That would make these "chandelier bids" where the auctioneer points to fabricated bids in the room (ie, the chandeliers). It's legal, but generally regarded as grubby. Sotheby's (who partnered with RM Auctions in 2015) is reported by Bloomberg to be privately furious.
"It's a perfect storm right now," Paul Zuckerman, a lawyer, podcast host and car enthusiast, tells Elliott. "There are too many auction houses auctioning too many questionable cars." If the auction houses are going to survive, "they really have to double down on curation and careful vetting of what they're selling. Reputation is everything". Nor does the controversy bode well for the classic-car sector. "Whether it's the threat of recession, broad economic volatility or too many cars crammed in too few hours, there's no denying the this year's Monterey Car Week results were depressed," says classic-car insurer Hagerty. Preliminary results showed sales this year, at $245.5m, were 34% below 2018's $370m.
As for the Porsche, as the car didn't reach its reserve, RM Sotheby's will continue trying to sell it. If it can't, the Porsche will go back to its owners, the billionaire Schoerghuber family. Unsold items are known as "burned" in the trade and tend to be harder to sell in future. As Zuckerman puts it: "The car is f***ed."
Grab a share of "passion assets"
The idea is that investors can buy exposure to an asset class that is generally independent of moves in the stockmarket. Rally Rd, for example, recently sold a Ferrari F430 to a private collector, booking a 17% profit. And Masterworks is offering shares in a painting by Andy Warhol of Marilyn Monroe along the lines of the peer-to-peer investment model.
A word of caution, however. "Securitisation makes sense when there's cash flow generated by the underlying assets," Steven Schwarcz, a professor at Duke University School of Law, tells Sullivan. But cars, art and wine pay no such income, and the investor only gets paid if and when the underlying asset (which tends to be illiquid), or its shares, are sold.
Police auctions are another way for collectors to pick up items on the cheap. An auction of seized goods in Newport raised £150,000 last month with Wilsons Auctions. The luxury goods, worth more than £2.3m, were sold with no reserve. That meant an 18ct rose gold Rolex Daytona (pictured), valued at £27,450, was sold to the highest bidder for £20,000. A house in Grimsby sold for £34,000, and a Ferrari 360 Modena, linked to drug offences in Malta, went for £33,000.