As Supercars Become Mainstream, Residual Values Suffer

Super luxury and exotic cars have often been regarded as priceless works of art, driven on rare occasions, bought by collectors, and owned with the expectation that they will hold or appreciate value over decades.  These irreplaceable objects embodied the highest level of design, workmanship, and engineering and conferred on their owners the prestige that reflected not only their wallets but also their sophistication. But as supercar assemblers change their business models, they are beginning to behave more like their mass-market counterparts, which could challenge the long-held assumption that linked value to scarcity.  Supercar automakers are boosting production and launching new models more rapidly than in the past, a trend that could dilute residual values unless a brisk secondary market develops to absorb a growing number of late model used supercars.

RVI Group, based in Connecticut, has monitored this segment for years and determined that the wholesale values of supercars generally mirror price trends in the overall wholesale marketplace, though often exhibiting greater month-to-month volatility. In 2008, supercar values dropped precipitously as the financial services sector, whose employees were often buyers of these vehicles, sunk into recession. But the sector also recovered faster as bargain hunters saw the chance to acquire one of these unique vehicles at a low price.

But since then, RVI Group, which publishes an index tracking used wholesale vehicle prices, found that its supercar index posted a steady decline starting in 2014. While the primary RVI index for all vehicles aged 2-to-5-years rose by 5.4% as of December, the super luxury index trailed with a decrease of 10.1% in 2018.

So, dealers, automakers, and lenders have to understand the implications of the changes in the supercar market to be able to assess future residual values. The first and perhaps most obvious question is whether the traditional supercar demographic group still covets these vehicles, or, like the rest of their generation, favors trucks over sedans and sports cars.

The behavior of automakers themselves poses questions as to whether the cars still sell based on scarcity value.  Elite automakers are chasing higher volume and market share using tactics taken from mass producers. No doubt the newly minted millionaires in China and India created a huge new market for these vehicles just as they have for most luxury brands. But as the supercar automakers expand product lines, increase production capacity, and compete for market share, they are behaving more like mass-market OEMs. The supercar marketplace has gotten crowded with every member of this group adding models and capacity trying to appeal to a broader audience. The group has even jumped into the SUV category with designs that often look very much like those of models priced at five digits, not six.  SUVs are practical, not elegant, as the current crop of super luxury SUVs demonstrates based on their aesthetics. Furthermore, battery-powered supercars may not have as much appeal to enthusiasts as finely crafted, hand-built engines that last more than a lifetime – whereas lithium batteries last no more than a decade.

To maintain the aura of exclusivity, McLaren, for one, has been creating limited editions of one, five, or ten models often for specific countries. For example, only five Cabbeen models with a Chinese dragon on the doors were made, and five Spiders went to Canada. With so many limited editions, one has to question which ones will make it to the Concours d’Elegance or command premiums in a future Sotheby’s auction, and which ones will simply become old cars. Boosting sales by offering lower-priced vehicles is another common theme from Bentley to Lamborghini and Maserati. In the long run, these variants could cheapen the brand as it appears to have done to the mere luxury brands.

Aston Martin’s public offering earlier this year was not boosted by the promise of an array of new models, yet Ferrari is planning an aggressive investment program to launch 15 new models, including hybrids and SUVs. Ferrari expected to sell 9,000 cars in 2018 up from 7,255 in 2015.

To maintain sales, supercar automakers push leasing over purchasing, and that means that their dealers will have more used cars to sell. A quick search of several inventory-listing sites showed more than 1,800 used Ferraris and more than 1,400 used Bentleys for sale.

In the U.S., demand for supercar vehicles has always been cyclical. Although these buyers are wealthy, they also are susceptible to economic shocks since a high percentage are dependent on bonuses, the sale of privately held shares in initial public offerings, and the overall strength of the stock market or sectors of the economy (currently, the tech industry). After all, these vehicles are more than transportation; they convey something about the owner.

When the supercar segment is impacted by economic pressure on its core customer groups and increased competition among the brands, inventory piles up on dealer lots, and greater competition among the brands is inevitable. As the supercar automakers produce more models, and more units overall, and lease rather than sell them, it is essential that lenders and dealers understand the variables that will determine future values. Does the Bentley Bentayga depreciate faster than the Silver Cloud? Are there second owners for limited edition McLarens who will pay a premium? And if so, which ones?

Will today’s supercars command prices many times their original price like the 1962 Ferrari GTO that sold for $48 million at Sotheby’s in 2018? One of 36 units built, the car represented the best in engineering demonstrated by its nearly 300 victories on the racing circuit. It is doubtful that any of today’s super luxury or exotic cars will have the heritage and scarcity value of that 1962 Ferrari, and this should be a concern to automakers, lenders, and owners.

Maryann Keller is principal of Maryann Keller & Associates, a New York area automotive strategy consultancy.