High Prices - A "rusty" economics view

[vint43]

To start, I am not a real economist, but 25+ years ago I played the role of one in school (mostly poorly)

However, in a prior post I heard a few people mention "price gouging" as a cause for certain models of VWs becoming more expensive, that, on their face, are not that rare compared to other models.

The problem is, for there to be price gouging, you really need a situation where the buyer "must" purchase a given item. Most commonly this is something like being stranded on the side of the road with a blown radiator hose and being charged $500 for the hose by the only local garage in town, etc. In essence, you are "stuck" being screwed by a seller of a item you require. "Needing to purchase" is really a critical ingrediant for price gouging to work.

It is hard to image an old VW ever falling into the "required to purchase" category. In almost all cases, the buyer is never in a situation where they have to buy the car, therefore, price gouging is really never a reason why certain cars get more expensive. It might feel like it (because you might really "want" the car), but it really does not fit the criteria for there to be price gouging because you never really "require" the car (compulsive buyers - like myself - can argue - but you get the point).

So, why is there a large $$ split in a market for certain types of cars (i.e. a concurs lowlight ghia vs. a "really, really nice" ghia of a similar vintage, etc.) even when the relative "rarity" is not that high, quality is not that extremely different, etc.

My basic econ theory for this is very straight forward. In certain types of cars (mostly the really, really high end restorations of relatively rarer models or extremely original cars), often, the large majority of sellers who own these simply do not need to sell. In essence, to restore or originally purchase such cars, you often have the means to hold such an investment for a longer period of time. While, in the larger mix of "really good cars" of similar vintage you end up with a larger percentage of sellers who have such vehicles that eventually end up "needing to sell" because they encounter a situation where they need the money "now".

So, ironically, it is not "price gouging" that is causing certain models of cars to go higher, it is "buyer gouging" that causes many of the slightly less then ideal cars to drop in price as buyers take advantage of more sellers who must sell... causing a greater separation of prices between the "very best" examples owned mostly by more reluctant sellers and all the rest owned by a greater mix of more willing sellers.

So, at the very top of the market, you have a set of sellers who simply can wait & not sell, causing the buyers to buy only at prices that "motivate" sellers. Slightly below the top of the market, you end up with a larger set of sellers who "must sell", causing pressure to reduce prices. You end up with a very large split at the very top of every collector market between the "best" cars and the "really, really, good cars". Collectors know this, causing even more "stress" in the market by having the top collectors only wanting the "very, very best" cars that will not fall into the same price pressures as the slightly less cars... making the problem even worse. Perhaps not expressly stated, the wealthy end up buying more cars from the other wealthy because they find a such a market "more stable" in price even though it is much higher in price in general. While the rest search out the "best value" which is often at the slightly less then perfect cars who have a lot more motivated sellers, causing those prices to stay lower, and causing price volatility. BOTH parties are acting logically from their perspective. You might hear a lot of auction companies like Barratt saying "you never lose buying the best"... there are some market factors that support that statement (it is just said too often to cars that really do not fit the bill!).

Sorry for the babbling, it was just on my old, tired, econ mind. So, the next time you think you see "price gouging" by sellers, you probably seeing the results of "price gouging" by buyers playing out in the market instead. The next time you see someone paying something "crazy" in your mind for a certain car, they just might be operating in a market dynamic that makes perfect sense to them.

In the end, collector cars seldomly work as a true "free market" because almost all econ theory is based on businesses that must sell something at a profit to stay in business. The top of the market is distorted because it has too many sellers that do not need to ever sell, and the rest of the market is distorted because you have too many sellers that are willing to sell at a loss for just one transaction. This causes distoration in prices both ways (too high and too low), causing a large divide in the market around pricing that appears "un-natural" but is actually very predictable.

[thom]

TL;DR: some prices are high because rich guys don't have to sell, some prices are low because people want to unload crap.
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-Thom
1956 Single Cab
1957 Porsche 356A Sunroof
1957 23-Window Deluxe
1957 Mercedes Westfalia single cab
1963 Unimog 404
1965 E-Type

[Wannasplit]

I understand. I've been a VW nut for over 30 years now and it does seem as if the prices are outrageous.

Most of the collector car market has been in a serious depression for the past 7-8 years, but not old VW's. Kind of ironic don't you think? The Beetle was the most numerous car in the world for decades. Now they have asking prices usually reserved for cars made in the hundreds, not hundred-thousands.

I wonder if these prices are just advertized or if people are really paying $9-10,000 for rogue Splits with no engines?

.

[johnshenry]

Interesting, and realistic perspective. I think the one element that is missing, especially with the early cars though, are the characteristics that drive the value up. To me, it comes down to 3 things 1) Restoration/workmanship quality, 2) "Correctness" and 3) Provenance/history.

The first one is easy, quality of work is universal. Could be a split VW, a schwimmingwagen, ar Corvette, at tractor or a toaster. But this characteristic cannot single handedly drive value. You could have the nicest resto work in the world, but but if it is a mismatch of chassis/body/engine, and has tons of incorrect parts (speaking of vintage restorations, not customs of course) it still will never compete with the cars that score well in #2 and #3.

Correctness is relevant only to buyers who care about it, but more and more, buyers do care about this as it is well established that the most correct restorations hold their value the best. I have said many times that the difference between a $30k split and a $60k split is all but invisible to all but the well educated enthusiast.

The last one has to do with "matching numbers" documented history, and yes, the "original" car. By definition, the "original car" must also score well in #2, but we still see many "All Original!" cars for sale ...with later engines, aftermarket interiors and incorrect bumpers. So original is really only relevant in the context of "correct" also.

So the highest value cars are the ones that score high in all areas, but most notably in #2 and #3 (Yes, there are some well done customs in history that have held their own as well, but I'd bet my left arm that in 20 years they will be worth nowhere near what they sold for originally. Go in the classifieds and see how many "ultimate 80s 'Lookers' you can find for under $8k). And those cars, are of course the rarest and most likely to be held by the hardcore collector who is in no hurry to part with them. And since they are so rare, the "market" value is highly subjective. What tends to happen, is that as soon as a high end car sells for an eye popping price, say, $65k, that becomes the new benchmark that all cars (similar or not) are measured and claimed to have the same value as.

I heard about a '63 bus that sold at Barret Jackson for around $220k recently. Does that mean that ALL '63 buses, in similar condition must be worth $220k? No. It means that there was one buyer (perhaps rich and uneducated) who decided that one bus was worth that. To him. Period.


Anyway, just my opinion, I'd never express anyone else's. And I'm sure Thom didn't read all of this either.....
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John Henry

'57 Deluxe
'56 Single Cab

[Kapt. Q]

A very interesting thread, I think that the schwimmwagens seem to have gone down in value lately, perhaps more so than the kubelwagens. They don't go for the asking price anymore. Perhaps this is a result of recession, more people need to sell, less can afford to buy; but perhaps it shows that they were overpriced at one time, a mini bubble. Funnily enough the parts market for them seems less affected though , so it still costs just as much to restore one. As has been said, human psychology is sometimes unfathomable.

[rzepko6194]

[tstracy39]

I think most of your points are probably true when applied to Barndoor Buses. There is a small enough number of them around and a good enough portion of those in the hands of internet savvy sellers that good deals on BD busses and parts are almost unheard of today, even on a stripped, charred and bullet riddled hulk recovered from some remote location. I still hear of great deals on Split Beetles every once in a while though, and I've been able to buy cheap Split Beetle parts with some regularity for the past couple of years. Placing wanted ads and making best offers pays off more than you'd think. Most hard to find Split Beetle parts are now reproduced by a couple different companies, and although the prices aren't exactly a steal, it has a way of driving the price down on the OG examples. A few guys, including myself, are tooling up to make some of the harder to find Barndoor parts, so hopefully some day soon we'll be able to get a decent replacement for anything that's missing.
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Check my classifieds for kewl gauges:

http://www.thesamba.com/vw/classifieds/search.php?username=tstracy39

[Wannasplit]

Collector car prices - once viewed as an investment are volatile. Right now VW's are hot and as much as everyone wants to believe that $35,000 splits and $60,000 busses will remain at that level for perpetuity, history dictates otherwise.

Almost every collector car in existence has gone through it's golden age of collecting. Someone mentioned muscle cars; great example. Some collectors who bought 10 years ago have lost 50% of their value. Exotics like Ferarris took an even worse beating and the prices of cars from the Pebble Beach set, Deusenbergs, Cords, Bugatti's and other super rare cars have seen prices tank. Now consider that the dollar has lost 20% of its value over the past 10 years and the news is even worse.

The high prices for VW's right now is an artificial market created partially by forces that might not exist 10 years from now.

[VWKDF]

[bwaz]

If you've ever tried to find or replace parts for a split, you know the cost of some cars aren't that far out of line when you look at the quality. If the prices of parts come down, maybe too would the car prices.
Most parts sellers are realistic, but I think those few sellers who jack up prices... actually have those items... and can wait to sell them, sometimes hurt the hobby rather than help. Every other seller who has a bent broken part think their part is worth $500 too, when $25 is more realistic... unless you want it for a rat rod to fill a hole on the car.

[sunroof]

I have been playing with Vws since 1979 and am in it for the long haul. It saddens me that the Americans have suddenly become interested in standards/ Canadian customs as this drives the prices up. OTOH this also brings alot of cars out of hiding making them more available, a double edged sword you might say.

I am also involved with British cars and have seen prices on E-types skyrocket to $120K+ and then back down to $30 - 60K. Right now Austin Healeys are topping the market at over $100k, 3x what they should be worth. I'm hoping that VWs cool off soon making them more affordable for the true lovers.

One of the benefits of being Canadian is our diversified stable economy means a strong dollar for buying cars from strapped foreigners.

BTW: I love VWs to a degree that is probably not healthy and the swap meet at Bad Camberg still has me reeling. The prices were astronomical but I'm hoping they come down to merely stratospheric for HO.

Don

[Grant Reiling]

[quote="VWKDF"]

[UZI]

[EverettB]

[UZI]

that is exactly how i built my collection, plus kicking in some cash. i'm not someone who can write czechs for original paint 23 windows without letting go of a few things. btw, i am an underachiever.
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Extravagant Lifestyle

Quote:

mannys66: South Philly Van Club, only the most influential and freshest van club in the vw scene

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Cuñado: Chrome will get you home!!!!!!!!!!

[johnshenry]

I think that the market for correct, well done splits and/or nice originals will continue to climb slowly. And perhaps more importantly, the owners of tired, beat down and hacked splits are realizing now that it is well worth their time to chase down those rare parts, and make their splits all they can be.

As pointed out above by another poster, the price of parts is also driving the price of finished cars. I have been selling most of my wiring harnesses, intakes and early parts outside of the US last year or so, and that market is strong. Lots of "correct" resto work going on out there.......
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John Henry

'57 Deluxe
'56 Single Cab

[spookymulder]

[Rich's 50]

[Cabriothusiast]

Rarity aside, the prices of vintage VW's have steadily gone up since the 80's as far as I can tell. There are still good deals out there and there seems to be far more people out there hunting for them. Price surges may be generational. As the older collectors finally let go of cars they have held onto for years, there is an increase in the amount of cars we all hear about of see on the net. Thus more for cars keep coming to market and some get restored.

I believe one of the biggest factors pushing prices up is the cost of the actual cost of the restoration process and time involved in actually completing a restoration.

I am just about finished restoring my 51 convertible after 4 years of steady work. All the right people worked on the car and the standard of work is exceptional. That said, the cost of a real restoration for the average "gotta farm out most of it" collector is extremely high. It far exceeded what I initally had budgeted and it will be a long time before the cost will make a potential sale a break even.

Unless the owner of a recently restored highend car finds the Barett Jackson type buyer, there is long period of waiting ahead before prices move up to a level that warrants the cost of that highend restoration.

When your mechanic, painter and interior guys charge $65 an hour or more, the cost of the restoration can go balistic quickly.

Just MHO

[pwmf]

Johnshenry, fwiw it was a 63 23 window(I think it was a walkthru also?) and it fetched 198k. It was absolutely immaculate. As nice as it was though, even if everything matched( which the v8 loving announcers failed to discuss) I guessed it would go for 55k or so.
Hey more power to the rich old guys it made happy, both the buyer and seller.