Jeremy Clarkson, reflecting on virtues of a pension system in his “Born to be Riled,” arrived at a point that it has none. You may die before the retirement. Or the money you diligently saved during your lifetime may depreciate. Jeremy recommended investing into cars:
“Pensions are all about planning, and planning is all about hope. And hope, invariably, leads to despair ... My advice is simple. Remove the risk. Invest your money... no wait, spend your money, on something you know will lose. A car ... Cars were an investment once, but too many people walked away from those late-1980s boom years nursing fingers that were burned through to the bone. However, and this is the key, they may have paid £100,000 for a Ferrari 308 GT4 which is now worth £20,000, but at least they still have a Ferrari.”
There is a reasonable point in this recommendation. But I would go even further. Owning a depreciated Ferrari – which can give you The Life full of joy and adventures – is not the best, actually, you can get from a Ferrari. Moreover, not everyone of you have enough spare change to buy a Ferrari. I'm not speaking here of Richard Jordan. Not everyone of you find it mutually exclusive: preferring cars to pensions.
Going further in my case means that the investment into a car should not make a loss, but a profit! That is why I decided to conduct a little research and dig deeper into an issue of classic cars. How it feels, buying a future classic? Can any car on the market become a classic? And – the most notably – can you buy an affordable car, drive it for fun, and sell it as a classic afterwards making money on a sale?
At what point the “more, better, and now” rule stops working?
To answer these and other questions in an unbiased academic way – and help you to become rich – I asked my friend and colleague Tomasz M. Napiórkowski for assistance. He is a US-educated economist who teaches at the Warsaw School of Economics and at my “native” Lazarski University. I mentioned Tomasz earlier in my article “Last Men & Their Automobiles,” where he criticized self-driving cars and admired the impenetrability of trucks. Our aim for this article is to construct an econometric model which will explain regularities in price formation for soon-to-become-classic pocket-rockets.
But first things first.
There is no universal definition of a classic car. There is also no clear mechanism for a car to become classic (apart from its being proclaimed as such by a respective title-awarding institution). Sometimes classic car equals youngtimer, sometimes not. It is generally regarded, though, that a car with the classic pedigree should resonate with the public opinion and have an outstanding aesthetic appeal. In a word, to be memorable, different, and cause nostalgia. Therefore, those cars which star in motorsport and shine on TV are first on a list to become classics. This does not exclusively apply to supercars and race-cars, though; any moving device on four wheels may end up with the classic status. And start growing in price!
Curious fact: Classic cars have their specific insurance categories. Any car above 20 years old which you drive ~3000 km per year will usually cost you cheaper to insure than any other daily driver. Moreover, in case of any damage – even a total destruction – you will get up to 100% refunding. The “agreed value” of the car, however, should be set before the damage. Check your local insurance companies for more details.
Speaking for a pocket-rocket for our research, we decided with Tomasz to take the Audi TT Mk1 from 2004-05. The end of production. Hundreds of affordable vehicles on the market. Buying one, storing it in a garage, and driving it from time to time will not consume much of your budget.
The TT Mk1 has all chances to become a classic (youngtimer?) in above five years. It can boast with history and uniqueness. To begin with, the TT became a “strike” into the Audi's image as a manufacturer of cars for serious people with a luxury sentiment. The TT was rough, raw and revving. The “black sheep” of Audi. Secondly, the public loved the concept car so much that it became a production model with almost no changes. And that happened fast! With the début on the Frankfurt motor show in September 1995, first TT's left factory in Győr, Hungary, in September 1998. Kudos to J Mays and Freeman Thomas for that fantastic design! Thirdly, the TT was the first Audi car to be welded with laser beams. It is also light: bonnet, front fenders, doors and roof are made of aluminium. The only rear body panels are made of steel, but of zink galvanized one. You got my message: the 206 kilograms “heavy” body will never rust. TT is a proper car-to-serve-long. Fourthly, the TT engines considered to be “bombproof” by mechanics and owners. Specifically, the most common 1,8 Turbo charged unit which seem to run like new even after 300K kilometres. Once again, this is a car-to-serve-long. Fifthly, here comes the media attention. Mk1 was nominated for the North American Car of the Year award for 2000. It was also on Car and Driver Magazine’s Ten Best list for 2000 and 2001. Sixthly, the vehicle breathes with sport. The TT abbreviation itself stands for the Tourist Trophy motorcycle race on the British Isle of Man. Two of the Audi-founding companies – NSU and DKW – gained a bunch of notable victories there. Apart from this, the TT has something to do with the phrase “Technology & Tradition.”
Should I continue?
Yes, I should.
There also exists the TT Quattro edition which alludes, in its turn, to the invincible rally-cars. Engineered for a harsh competition, the Quattro technology allowed the 1980's Audi Ur-Quattro with an original four-wheel-drive to remain undefeated for two seasons in a row. To keep the public interest heated to this success, the Audi AG continues producing a limited number of Quattro vehicles for a “civic” use and badging them respectively. A distinct lower-case letter “q” is placed on their most visible body parts. The TT Mk1 Quattro also draws from this well.
Let us return to economics now. Year by year, the prices for Audi TT Mk1 go steadily down. Some good vehicles may be bought today very cheap. Therefore, if you are smart and lucky enough for a good purchase, it will eventually pay off in future.
At the beginning of December 2017, me and Tomasz examined the EU market for the Audi TT. All vehicles produced in 2004-05 were carefully filtered on the Auto Scout 24. The latter is a German car-searching web-resource which covers the whole EU market. We obtained 125 “targeted” vehicles and started noting their key characteristics down: the mileage, the engine, the documented servicing history, the body, the equipment level, and the Quattro option. We ended up with a huuuge Excel table with every of 125 cars having a couple of columns. Through comparing these columns, we expected to point out how a selected characteristic influences the price.
Let me shed some extra light onto the key characteristics. The Audi TT Mk1’s produced in 2004-05 were equipped with the following engines: 1.8T with 148HP (very common), 1.8T with 161HP, 1.8T with 178HP (very common), 1.8T with 187HP, 1.8T with 222HP, 1.8T with 237HP and 3.2 V6 with 247HP. The “targeted” TT Mk1’s also came in two body types: coupé (4- or 2-seats) and roadster. As for the equipment level, we divided all 125 vehicles into two groups: basic and rich. The latter included, apart from the standard features, multi-function steering wheel (often), automatic climate control, heated seats, xenon headlights, advanced sound system, additional airbags, sport seats (often), and other extras. The impact of the Quattro option on the prise was scrutinized through the division of all vehicles on no-Quattro, Quattro and Quattro Sport.
The number of previous owners was disregarded. We thought that the servicing history is more important as it would reveal what had been done to the vehicle regardless of the ownership. Bodycolor and the gearbox type were disregarded either. Heavily modified cars were rejected immediately.
On a stage of data collection, we could not but observe a couple of curiosities. Roadsters seemed to be generally cheaper than coupés and had lower mileages. Then, there was a clear cut between German and non-German TT’s. The latter often lacked a servicing history and came with budget mods (chip-tuning). Specifically, this was the case for Italy and Spain. The prices for such cars were also higher than in Germany. In French and Dutch cases, where the lack of a servicing history was also a common deal, the price looked fairer. German offers had everything in place. The conclusion here is: If you want to buy a promising classic Audi TT Mk1, go to Germany!
Using econometric modelling*** we discovered that the statistically significant factors which impact the car price are mileage, service history, and the Quattro option. The engine type, body, and equipment proved to have very minor or no influence. With a few exceptions, the econometric model we created covers the original data very well.
The left vertical axis stands here for the real-life car price. The horizontal axis stands for the case-study car numbers (1-125 examined cars). The right vertical axis stands for the difference in real-life and modelled prices.
The average price for 2004-05 Audi TT Mk1 on the Auto Scout 24 is ~€14K. The blue line demonstrates the fluctuation of prices. The most expensive vehicles are grouped to the left. The red line is our model which considers the real-life prices and reveals what should be expected market prices. As you can see, the real-life prices (blue) and the economically justified prices (red) coincide in majority of points. Which is good! The green columns present the difference between prices. The higher green column soars – the more you “overpay” for the specific car (one of 125), the lower it drops – the bigger “bargain” the car is. As you may see, there is a good chance for you to save up to €3K on the purchase! Or lose more than €5K if you choose to purchase the TT in – presumably – Spain or Italy.
Our model has also demonstrated a couple of other interesting things. Every kilometre covered by the TT lowers its price by €0.03. The documented service history increases its value by €750. The four-wheel Quattro drive leads to a ~€2.4K higher price. But the gamechanger is the Quattro Sports edition. These cars are often ~€17.3K more expensive than average TT’s.
Therefore, if you consider purchasing a proper “classic” TT Mk1, do not pay more than €750 for the servicing history. If you hesitate between an average poorly equipped 1.8T vehicle and the Quattro (both 1.8T or V6) do not pay more than ~€2.4K for the Quattro. If you hesitate between an average TT and the Quattro Sport edition, do not pay more than ~€17.3K for the latter. You will probably not earn more on re-selling this car.
Speaking of the Audi TT Mk1 Quattro Sport, it has always been regarded as something special. The coupé-only limited edition (800 only sold in the UK) crafted by the AUDI AG high-performance specialist subsidiary quattro GmbH. The vehicle is powered by a boosted 1.8 Turbo engine capable of 237HP. The vehicle has a much sharper handling, firmer ride, and weights 75 kilograms less than an average TT. It takes 5.9 seconds for the Quattro Sport to reach100 km/h. The speed is electronically limited to 250 km/h.
Therefore, if you want to make some money – go for the TT Quattro. If you keep it covered with cotton in a garage and do some preventive maintenance, it will make you profit. At least ~€2.4K if to compare with a no-Quattro car (calculations as for December 2017). You can buy TT Quattro even without a history, what will save you €750, but you should start the history to get more profit on a re-sale. Once again, the 1.8T or V6 engine makes no big difference.
If you want to make a big money – go for the TT Quattro Sport. Considerable mileage may not a problem, but an asset! Our model shows that it will definitely make the car cheaper. Later, if needed, you will invest ~€3K to rebuild the engine in an authorised service. We may speculate that with the “new” engine the price for the Quattro Sport will rocket even higher than ~€17.3K Euro on a re-sale! But, once again, this is a speculation; we need to make another econometric model to prove it. And yes, owning the Quattro Sport you will have much fun driving it from time to time.
To make a little money you can buy a no-Quattro roadster with ~100K kilometres on odometer for ~€6K. Or less. And put it into the garage for five years. Bearing in mind that an average TT from the Auto Scout 24 covers ~12K kilometres per year, and every kilometre costs €0.03, you can (theoretically) make up ~€1.8 in five years on simply driving your roadster on sunny days. Moreover, if a “black swan” effect happens – for instance, a mass nostalgia or your becoming a celebrity, – you will get much-much more for your well-maintained pearl.
Having written all this, I'm thinking now of buying the TT Mk1 Quattro roadster 1.8T with no history. Should earn me a couple of thousands...
To conclude, me and Tomasz will continue exploring the how-to-earn-on-cars topics. For instance, we think of taking the BMW M3 series and tracing the prices year by year to find out at what time it will be the most profitable to sell such a car. We will also think of examining the American market – which is different from European – and assess the appreciation of classics (youngtimers?) there.
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*** For those of you interested, to make the model we have used Ordinary Least Squares, with R-squared of 0.897, probability of F-stat. Equal to 0.000, Durbin Watson = 1.997, maximum VIF of 1.136 with an average VIF of 1,094.5, maximum Cook distance of 0.2283, no sign of heterostadesticity, p-value of Kolmogorov-Smirnov statistic equal to 0.2 and no statistically significant correlation between residuals and used explanatory variables. Despite the above, we are treating this as an introductory research at this stage.
P.S. Mates, we did this research for your wallets to become tougher. We expect you not only to read this article, enjoy it, comment it, and forget about it, but use the acquired knowledge and make your car work for you! As Jeremy said, cars are one of the best options to secure your fun and hassle-free retirement.
P.P.S. Neither Auto Scout 24, nor Audi AG paid us anything for references to their brands. These two companies provided us with the best tools and resources to test our hypothesis. Simply.
P.P.P.S. Matt Parsons can be reached here: www.behance.net/Matthew_Parsons_SA