The L Word

Article

Motorsports is not cheap. It’s (whichever expletive you want to use) expensive. From buying the car to adding mods, to never-ending consumables, adding mods, chasing repairs, building safety, adding mods- you get the point. But what if there’s a much cheaper way to do this?

What if, by choosing the wrong car or installing the wrong modifications, you’re leaving tens of thousands of dollars on the table?

Allow me to introduce the “L” word that is completely underrated, almost never talked about (mostly due to the fear of reality), and is the secret tool to running this marathon: liquidity.

In the most simplest terms, “liquidity” refers to the ability to turn an asset into cash. “How liquid an asset is” speaks to the strength, demand, and quality of said asset.

In respect to our motorsport cars, the liquidity of our cars is deeply dependent on how desirable it is to others- from the quality of mods, to the type of car, and how large the “runway” is for a new buyer to accomplish their motorsport goals with.

Here are 4 principles to keep in mind as you buy, build, or consider selling your motorsports car:

Principle #1 – Too customized

When a car is too modified to its owner’s preference, from aesthetics to mods, you narrow the number of prospective buyers because your car is becoming increasingly more niche. It’s not to say that there isn’t an ideal buyer who absolutely loves what you have built. But statistically, a car that is more of a blank canvas is more desirable to a wider audience than one that is too customized.

Principle #2 – Not built for existing demand

This is an extension of the first principle. If you own a car and are modifying it for your respective motorsport goal, consider building it towards existing demand.

Say you have an E46 330 and you’re going through the ranks of HPDE. Rather than chopping it up and creating custom mods, consider the fact that Spec E46 is one of the most popular racing classes across BMW CCA, NASA, SCCA, and other organizations across the entire country. Modify your car towards a Spec E46.

I’m not saying that you go all the way with the build, btw. I’m simply stating that a super custom E46 330 is harder to sell than one that is “on its way” to becoming a Spec E46.

Principle #3 – Unique models are fun but come at a price

There’s a Porsche or M3 at every race track. Corvettes and Mustangs rip through every drag strip. BRZ’s and Miata’s dominate autocross. But what about an Aston Martin V8 Vantage track car? How about an old Alfa Romeo GTV? A man can dream.

While the idea of unique cars used for motorsports is super appealing, the reality is that these come with consequences- aftermarket support is lacking, parts may be NLA, and the liquidity is lower than a popular car.

While I’m not telling you to “be like sheep and buy a Miata” or that your unique car does not have a buyer, I am simply reminding you that uniqueness can come with a liquidity penalty.

Principle #4 – Always plan for exit

This will be true across various asset types. Always plan for your exit. Remember that an asset’s value is ultimately affected by its level of liquidity. For example, a used Bentley Arnage is a tremendous amount of car for $25k. But due to its low demand (and liquidity), it's more like a $15k car.

When the only way to exit a platform is to lower the price enough to make it attractive, the liquidity is not good.

As it relates to motorsports, say you’re at a crossroads between buying someone’s motorsport car or you’re at the point of choosing modifications, ask yourself exit-related questions: how much can I resell this for now? How much can I sell this after 1yr of usage? 2yrs? 3yrs? How quickly can I sell it? What does the demand look like? How quickly (and strongly) are other similar cars transacting in the market?

Remember that, while you may have plans to keep your car for years to come, life changes may happen and you may need to liquidate sooner than expected. Keeping your exit in mind as you choose your car (or build it) will give you much more flexibility to lose less money.

Conclusion

Paying attention to those principles can be the difference between losing a few thousand vs losing tens of thousands. It can mean the difference between taking 1 week to sell a car or taking 1 year.

We are already in a niche segment. It doesn’t hurt to buy and builds towards liquidity. Your wallet (or children’s inheritance) will thank you.