Doug Casey on Cars – Past, Present, and Future

Interviewed by Louis James, Editor, International Speculator

Recently: Doug Casey on Global Warming

L: Doug, last week we talked about energy, including your thoughts on what’s in store for the oil markets. That naturally leads me to ask about something that I know has been near and dear to your heart: the automobile. Especially high-performance cars – which were the basis of your first capitalist venture.

Doug: It’s appropriate that we talk about cars now, with the recent bankruptcy of General Motors. I’ve always been interested in cars. The first car I had was a 1964 Pontiac GTO, with the tri-power and all the extras. Throughout my life, I’ve always had high-performance cars. I had a couple 289 Cobras. I had a 427 Cobra.

And yes, the first business I got into was importing Ferraris to the United States. This was in 1967. In those days, there was a relatively small middle class in Europe. So you could either afford a new Ferrari, or a new Fiat, but there was no market for used Ferraris, because of the maintenance costs and social strictures that came with owning one. On the other hand, in the United States, there was even more of a middle class to society than there is today, and everybody wanted a used Ferrari.

I was in college at the time, but I saw the opportunity and decided to act on it. I bought a 1962 250 GTE 2+2, in Milano.

L: Was that the four-seater?

Doug: Yes, although the backseats were pretty cramped. It was the car that Ford copied for their 1964 Mustang 2+2, and it was a lot of fun; it had a 3.0-liter V-12 with three 2-barrel Weber carbs. I drove it through a lot of Europe and went to a couple of driving schools, one at Montlhéry, the autodrome of Paris, the other at Monza in Italy. I then sold it, sight unseen, to a guy in Ohio. The price was so good, he couldn’t resist it.

I went back to Milano to pick out a second Ferrari, a 330 GT 2+2. I had the bit in my teeth – I had plans to refine the business. Who knows, if I had done that, my entire life would have been different. But… Stroke of fate. There was a truck passing a tractor on a blind curve in between the towns of Fribourg and Bern in Switzerland, and I had a catastrophic accident. It put me in the hospital for six weeks.

That put paid to my first business venture of importing used exotic cars to the United States, but I’ve stayed interested in cars since then.

L: What’s your favorite car today?

Doug: Well, I’ve got to say that dollar for dollar, pound for pound, you can’t beat a Corvette. It’s too bad it’s a General Motors product – it’s one of the very few that General Motors makes that’s a decent car. More than decent; the Corvette is a fantastic car. It’s a high-performance, light-weight, fine-handling economy car.

I have a Corvette I bought in 2004, and the car averages about 23 mpg in the city, and about 26 or 27 mpg on the highway. In fact, I’ve noticed that while cruising in it over 100 miles per hour, even then, it averaged 26 mpg, according to the instant readout.

L: I always thought you were joking about Corvettes being economy cars, but it’s true. My 2008 gets 30 mpg at 70 on a level highway – at that speed, it’s barely ticking over at about 1,500 rpm. My average fuel economy, for the entire time I’ve had the car, including city driving and some racing, is 23.4 mpg. I bought the car at your suggestion, because most of the time I drive, I’m driving by myself to an airport or to business meetings. It was silly to be driving my nine-passenger SUV like that – it gets literally half the mileage, and it’s hard to park the beast in Vancouver to boot. For folks who drive a lot by themselves, or with just one passenger, the Corvette actually is an economy car.

Doug: Yes, they’re fantastic cars. They don’t need maintenance. They use very little fuel. They don’t rust. If anyone’s looking for a high-performance car, I’d suggest the Corvette be the first on their list.

In New Zealand, where I live three months of the year, I’ve got a Toyota Supra Twin Turbo, which is almost as fast as the Corvette but isn’t nearly as much fun. I’ve also got a Mazda RX-7, fantastic car, but I’m just too big to drive it comfortably. I let my normal-size friends who come to visit use it.

In Aspen, I’ve got a Porsche, the last of the air-cooled twin turbos with four-wheel drive, and it’s a lot of fun to drive. But when I’m driving into town and I have to decide whether to take the Porsche or the Corvette, I usually take the Vette. The Porsche is actually faster, handles better, and in a road race, it’d probably win, but the Corvette is just more fun to drive.

L: So, what’s the ratio, dollar for dollar, as you say. The Porsche is a little faster, handles a little better, but it costs – what – three times more? Four?

Doug: In 1996, the year I bought my Porsche, it cost $105,000. That’s about $144,000 in current dollars. In 2004, when I bought my Vette, I paid about $40,000 for it, which is about $46,000 today. So in real terms, the Porsche is more than three times more expensive – but it’s not three times as much fun. And the Porsche doesn’t even give you a cup holder. [Laughs] And I promise you, when you change the oil or have anything done on the Porsche, it’s going to cost you two or three times what it costs on the Vette as well.

The only car I’m looking at that I’d kinda like to get right now is a Ford GT. Perhaps that’s because I have a soft spot in my heart for the Cobras from the ’60s. I’ve driven one of the GTs – which they no longer make – and they’re actually fantastic cars. The problem, however, is that the roads in the U.S. are full of police, and they’re full of other cars. These days, if the police pull you over for driving a car like the GT at the speeds that would be the whole point of owning the car, they’ll take your license and they might even take your car.

I mean, in the ’60s, when I was a bit wild and crazy, I was in a few road races with the police. And what would happen? They might throw you in jail for a night, give you a series of $50 tickets, and it was no big deal. I speak from personal experience.

But now it’s serious business, and not just in the United States. In many countries in the world, if you’re caught exceeding the speed limit by too much, you’re in for some very serious consequences. That’s one of the pluses about Argentina. Wide-open roads, few police, and they have a very Italian attitude towards speeding. Actually, I’m thinking of putting in a quarter-mile dirt track near Estancia de Cafayate as an additional amenity… dirt-tracking some cars with roll cages with a few friends is my idea of a good time.

L: You’ve got that right – fortunately, there’s a race track not far from where I live. With GM having gone bankrupt, what do you think will happen to the Corvette?

Doug: With GM having become a state-owned enterprise, I wonder if – just on general principles – I wonder if they won’t finally kill the Corvette. The administration might like to see it replaced with some dim-bulb Birkenstock car. So, not only should anyone looking for a performance vehicle put the Corvette first on their list, they should think about moving quickly if they want a new one.

Actually, when it comes to exotic cars, I think the market in them is going to collapse in the near future. That’s especially so for Lamborghinis, Ferraris, Aston Martins, things of that nature.

That’s for several reasons. First, there’s every reason to believe that the price of oil is going to go way up, so people are going to be driving a lot less. Second, the social environment is going to be one in which you don’t want to look like some rich guy who’s still living in the ’80s or ’90s, driving an exotic car. Third, people are just not going to be able to afford these kinds of cars in the same numbers – and a lot of the people who have them are going to be selling them.

There was a huge boom in exotic cars from the late ’80s to the early ’00s, so I think the prices on them are going to collapse. Plus, the world really is going to switch over to hybrids and electric cars. So, if you want a Lamborghini and are willing to wait a few years, I think you’re going to be able to pick up a real bargain.

In the mid-’80s, in the newsletter, I recommended buying ’60s muscle cars as a speculation. I personally bought a 1970 Herb Adams modified Trans Am, but sold it way too soon because I didn’t have a practical place to store it… really dumb of me. The peak came about four years ago when I saw a couple of Baby Boomers, guys my age, who bid a 1970 426 Hemi Dodge Charger up to $2 million. I couldn’t believe it. Obviously they really wanted that car back in the day, but couldn’t afford it then.

But those days are over for a good many years to come. Probably a couple generations. Lots of cars like that will wind up in barns, and what was once $4,000, then $2 million, will again go for whatever the equivalent of $4,000 is then…

L: So, how about those hybrids and all-electric vehicles – have you test-driven a Tesla Roadster?

Doug: No, but I’d like to try one. I have driven a Prius, which is not an unpleasant little car to drive, but it’s just simple transportation. Hardly what I’d call a fun ride.

L: If I recall the numbers correctly, the Tesla Roadster accelerates at about the same rate as my Corvette – but it does it constantly from zero to 125 mph. And it does it without changing gears. So, in any situation in which you’re not worried about your top speed, I could imagine that being a lot of fun.

Doug: Yes, I’m all for the new generation of electric cars that are going to be coming out. Some of them are going to have excellent technology and be great fun to drive.

I think it’s criminal, the way the government is trying to keep dinosaurs like General Motors and Chrysler alive. These things have been brain-dead – run by accountants – for decades. Whereas there are new companies, like Tesla and others, being put together by a new generation of car guys, that look to be able to build fantastic cars that are fun to drive. Unfortunately, the governments of the world make it so hard to start a new venture, with all the regulations and so forth. So, instead of having hundreds of new electric car companies, which we would – and should – have, just as we had hundreds of gasoline-powered car companies a hundred years ago, we’re going to have just a few. The state is the enemy of everything good and enjoyable in the world.

When I think of things as simple as cars, it really brings me back to a basic question I often ask people. It draws the line. And the question is: Do you hate the state or not?

You know my answer. The state is really the great predator. It’s stalking you, and your standard of living, and your life. The state is not only keeping automotive technology twenty or thirty years behind the times, but it’s keeping all technology from reaching levels most people think of as being only science fiction, like Star Trek.

L: I hope you’re right, because forms of government change over time, and I believe the state as we know it was an industrial-era form that will not last long in the information age. Once it’s out of the way, we may get to see some of your Star Trek technology.

Meanwhile, what about investment implications today? Obviously, you’re not a GM fan, but they are coming out with an all-electric vehicle, and so is Ford and the Japanese too. Would you buy any of them or just the new innovators like Tesla?

Doug: I wouldn’t touch the big companies, but getting into a start-up company in heavily regulated environment is really tough. With the government trying to keep the old dinosaurs alive and to keep their bloated, overpaid labor forces in their uneconomic jobs, they are not going to make it easy for the real green shoots – which would be the new entrepreneurs. Fact is, as I said before, that there should be hundreds of new auto companies, but there are only a half dozen or so serious ones around the world at this point.

Would I invest in them, if possible? That’s very iffy. They are now going to be competing against what is becoming, effectively, a government monopoly.

L: Okay, well, how about farther up the food chain? What about suppliers, especially the battery manufacturers, and the energy metals miners?

Doug: Sure. I’d be much more prone to invest in a company that produces lithium, for example, because everyone’s going to need it for car batteries. And that’s true whether it’s a government-run car company or an entrepreneurial company. That’s because lithium batteries deliver the most power per weight of any battery technology on the market. So I’d be much more inclined to bet on something like a lithium explorer or producer than on a new car company.

Remember, Warren Buffett didn’t become as successful as he is by buying every new start-up idea that comes along (in which everything that can go wrong usually does). He can’t look at small companies because of the size of the assets he manages, but if he could, he wouldn’t even think of them unless they fit Graham-Dodd parameters. That means they’ve got to have a solid balance sheet, five years of growing earnings, etc., etc. Buying into a new car company is pure pie-in-the-sky speculation, not investing.

L: So, in your view, the best way to bet on the current automotive trend is to buy stocks related to the metals that will go into new generations of car batteries, and the energy commodities that will generate the electricity needed to charge those batteries. These are the kinds of speculations we follow in the Casey Energy Report and the International Speculator.

Doug: Right. And if it’s driving fun you’re interested in, check out the new Corvettes. The Z06 packages give the new Vettes an agility more like that of a fast motorcycle than a car.

L: I sure love mine! Thanks for your time.

Doug: It’s been fun. Till next week.

October 19, 2009

Doug Casey (send him mail) is a best-selling author and chairman of Casey Research, LLC., publishers of Casey’s International Speculator.

Copyright © 2009 Casey and Associates

The Best of Doug Casey