Latest / VREF | The Truth About the Aviation Market / The "Ferrari Problem" Is Coming For Aviation | EP 53
Transcript
- Addison: Two numbers six hundred fifty six thousand six hundred and eighty eight dollars and then one million one hundred one thousand six hundred and ninety four dollars. Same car, same week, two identical specs, identical years, it's statistically the same car. The first number is the market benchmark, a value built from every recorded sale of this car. everywhere, weighted and updated continuously. The second number is what a dealer is asking for one right now today. That ask is sixty-eight percent above what the data says the car is worth. And here's the part that should make you put the coffee down. That second number isn't even the highest asking price. There's one listed at over 1.2 million. The car Well, it's a Ferrari eight twelve GTS. But this episode isn't about the car. And it isn't really about Ferrari pricing. It's about how an illiquid market can manufacture the appearance of value without ever discovering a price. And if you own, finance, insure, or broker aircraft, you have seen this exact movie before, you might be in it right now. Welcome back to the truth about the market. I'm Jason Zilberbrand. I'm president of VREF. We are the valuation guide and database that every bank insurance company, the courts, the appraisal professionals, they've all relied on us for decades. And I spent my entire career putting numbers on machines that people love too much to price honestly. I'm also a senior accredited appraiser. I've testified as an expert witness in federal court. Where disputes were eight-figure airplanes and the lawyers attached to them were on the line. And yes, if you've seen an appraiser on television explaining when somebody's pride and joy is not worth what they think it is, there's a decent chance that was me. I've been called the celebrity appraiser. I answer to it reluctantly. The cameras are fun, the number is the job. Every week on this show we pull back the curtain on what's really happening in aviation marketplace, what aircraft are actually worth, what they cost to own. And the things the glossy listing sheets just won't tell you. And there's no spin, there's no sales pitch, just the truth about the market. And today we're starting outside aviation on purpose. Because sometimes the clearest way to see a mechanism is to watch it operate on somebody else's asset class first, where you have no money at stake, no skin in the game, no emotion in the metal, and the data's sitting in public where anyone can check it out. And then we bring it home. So bring a pencil. The second half of this episode is a test. You're gonna wanna run on your own airplane. Trust me. So let's look at this Ferrari market with an appraiser's eye. Not a car guy's eye, but an appraiser's. Three layers to it, and let's keep them separate because the entire lesson lives in the space between them. Layer one, it's the statistical benchmark, the aggregator sites that track this market. You got classic.com is the big one. They publish a benchmark value built from recorded sales, which includes every auction result, every reported deal or sale weighted and rolled forward. For this car, as of this week, that benchmark sits at the number I gave you at the opening, about six hundred and fifty-seven thousand dollars. That average recorded sale across the model's history is lower still, about five hundred and eighty six thousand dollars. That's layer one, what the accumulated record of actual transactions says. Layer two, the windshields. 59 of these cars are listed for sale right now today. The asking prices start. Around 850,000 and run to 1.23 million. On the first page of listings alone, seven cars are asking over a million dollars. So the entire visible market, the market you see if you go shopping at Classifieds is priced 30 to 80% above the statistical benchmark. Not one of those listings is anywhere near it. Okay, layer three. And this is the one I want you to write down. The highest price this car has ever achieved at a recorded public sale is nine hundred and fifty five thousand dollars. That was one car on one day, and it happened this past January. That is the all-time high watermark of verifiable reality. Which means every single ask above a million dollars, and there are many, is asking for something that has never once been observed in public. The recorded market has never crossed a million dollars. The asking market lives there. Hold one thing about those layers. Because the windshields are only layers that most buyers ever see. The benchmark takes effort to find, and the closed comps are private. But the ass are marketed on you, on every aggregator, on every search alert. The layer with the la least amount of evidentiary weight has the most visibility. And trust me when I tell you that's not an accident to this market, it's a permanent feature of every Every illiquid market, and it's the soil the next thing grows in. So, how does an entire market's asking structure detach from its own transaction record and float 30 to 80% above it? Well, it happens through a sequence. I'm going to call the listing cascade, and once you see it, you can't unsee it. And it goes like this: one seller, maybe the most optimistic guy in the entire country, maybe it's a dealer with a cheap floor plan financing and no urgency. Lists his car at a million dollars. It doesn't sell, but it doesn't matter. The listing exists, it's out there, it's on every aggregator. Every search result shows it. The next seller shopping his own car sees it and thinks, well, mine has carbon seats. And lists at a million fifty. The third guy's car has 900 miles on it, so it's basically new. So obviously, his is worth more than those two sitting on the market at a million one. And now there are three listings over a million dollars, which means the fourth seller, well, he's not even being aggressive. He's just pricing to market. Look, everyone's asking a million dollars. See, follow what just happened. Each listing was priced off of the previous listing. S referencing ask, referencing ask. At no point in that chain did a closed transaction even enter the conversation. The record, the actual record, still tops out. At 995. And the average of everything that ever really sold is under $600,000. But everyone now knows it's a million dollar car because everyone, quote unquote, well, they're quoting each other. Nobody established a repeatable clearing price. They established a consensus asking price, which is a different animal entirely, which is a survey of hope, denominated in dollars, right? And there's a fourth actor. In the cascade, nobody talks about. The professionals downstream of it. Because eventually one of those million dollar cars, well, it gets financed, or insured, or better yet, divorced over, and somebody calls an appraiser for evaluation. And the lazy version of that job pulls the three active listings, averages them out. Boom, you got a number. Now the cascade has been laundered into a document with a letter head. The ask became a comp. It became collateral value. No transaction ever occurred at any point in the chain. And see, I've watched that exact laundering happen when airplanes more times than I want to count. And it is why I keep saying ask your appraiser what their number traces to. If the answer is listings, you don't have an appraisal. You have a screenshot with an invoice attached to it. And to be fair, this isn't a scam. And I don't think anybody's lying. Every listing is a real offer from a real party. Pathology is reference error. The market lost track of which number is the anchor. Price discovery runs one direction and transactions inform asks. Run it the other way, asks informing asks, and you get a structure that looks like a market, quotes like a market, and clears like nothing. Nothing at all. The appearance of value manufactured entirely out of an asking price. No price was ever discovered. That's the artifact. Hold it in your head. Benchmarket six fifty seven ass a million plus all time recorded high nine ninety five. A visible market priced above its own historical ceiling, and it's sustained entirely by self reference. Sound familiar? Now, before anybody emails me to say the whole collector car world is a bubble and I'm just a permabear with a spreadsheet, no, that's not the case, and the proof is sitting on one aisle over the same showroom. Look at the current generation Porsche 911 market, the 992 model. Same buyer demographic, same dealers, same aggregator sites, same interest rates, and it's the same economy. And the asking prices have been softening. Sellers are adjusting downward. Listings are repricing toward where cars actually close, not away from it. The reference chain in the market still runs the right direction. Transactions are informing the asking prices. And that's the beat that matters, guys. So don't skip past it. If this were a market-wide mood, easy money, exuberance, everything inflating together, you'd see every desirable car going the same dance, but you don't. You see one asking structure detached from its transaction record while a comparable market next door reprices normality. That tells you this is not a sentiment story. It's pricing pathology, a specific local failure of reference, and a specific corner of the market where thin supply and patient sellers let the cascade run unchecked. The second lesson, and the counterexample is supply. The nine hundred eleven is made in volume, enough closings to keep the record loud, so a seller who drifts too far gets corrected by the car one town over. The eight hundred twelve GTS Ferrari, on the other hand, is scarce. There's few cars, there's fewer sales, a record quiet enough for the asking chorus to drown out. Scarcity doesn't just raise prices, it degrades price discovery, because the record updates too slowly to discipline the asks. And if thin transaction record plus patient seller sounds familiar, well it should. It's the resting state of every aircraft segment there is, which means the right question is never, is this market crazy? The right question is, in this specific segment, which number is anchoring the asking prices, the closings or other asking prices? That question travels. That question works on anything illiquid and emotionally held, which includes cars, watches. Real estate and yes, airplanes. Quick pause. And you know what's coming, but I'm gonna earn it this time. Follow the show, like the episode, subscribe on YouTube or whatever podcast app you're in, leave me a rating, and here's the honest reason. Same as always. This show runs on full market data and zero sponsorship from anyone it covers. We get no money, no OEM money, no brokerage money, no dealer money, nobody paying me to tell you their inventory is fairly priced. The algorithm is the only marketing department that I have. And you are the algorithm. So I asked for 10 seconds of your time to give me a thumbs up so that independent valuation talks are in front of the next person about to price something off of a windshield. Please do it now. And thank you. All right, let's get back to it. So, airplanes. If you're in business aviation, I suspect you were there too. Two minutes ago you heard each listing priced off the previous listing and no closed transaction ever entered the conversation, and a specific airplane came to mind. Maybe you thought of a specific broker. Maybe you thought of your own hangar. Because the structural ingredients of the cascade, thin comps, no central price reporting, sellers wealthy enough to wait forever, and an asset people love too much to price honestly. That's not the description of the Ferrari market that happens to fit aviation. That's a description of aviation that happened to fit a Ferrari. So, say the thesis planly. Say it with me. Illiquid markets can manufacture the appearance of value without discovering price. That is this episode. And it is squarely precisely the problem V ref exists to solve. Because the only antidote to manufactured value is a record of what actually sold. And building that record is what we do all day. But, and this is where we have to slow down. And be more careful than the car blogs like to be. The analogy is very dangerous if you take it straight. See, aviation isn't a copy of that market. It's a market where the pathology is chronic rather than acute. So let's do the aviation half properly in three parts. Part one, why the spread alone tells you nothing here. Well, in the car market, sixty eight percent asked to benchmark GAP as a flashing red light. Because that market has deep public transaction data. Auctions with published hammer prices, thousands of sales a year, VINs are recorded across their entire life cycle. When asking prices detach from that record, the detachment is visible and abnormal. Aviation has always, always, carried a wide gap between asking price and the closing price. There is no central price reporting system. Closings are private, terms as you know are confidential, and the comp set for any given model year is thin, Sometimes three or four genuinely comparable transactions a year worldwide, that's it. Sellers are as a class rich enough to wait it out. So a listing sitting twenty percent above where the airplane will actually trade isn't pathology in our industry. It's Tuesday, if I declared an aviation bubble every time ass ran ahead of closings, I'd have been wrong for thirty consecutive years. I'm saying this early and loudly because it's the difference between analysis and noise. Every few months somebody discovers asking prices, notices they're optimistic, and then writes the scare piece. The spread is not the signal in a market with no public price tape. The spread is a permanent structural feature. You're not you cannot read it in isolation, and anyone who does is telling you they don't know how this market works. Think about why the structure guarantees it. Seriously, I want you to think about this. When a business jet closes, The price lives in a purchase agreement covered by a confidentiality clause. The wire clears, the registry shows a change of ownership, but the number itself evaporated from public view because it was never there. The only prices that stay visible are the ones that failed to sell, the listings that just happen to have asking prices, which in the business jet market is probably less than 30%. So the public record of this market is by construction a museum of its unsold inventory. Priced by its most impatient sellers with its most aspirational asking prices. Of course the visible number runs high. It's survivorship bias in reverse. The successes disappear and the holdouts stay on display. Any analysis built on what you see from the sidewalk starts from a sample, that is systemically wrong. Which is why closed transaction databases exist and why the people with real money at stake pay for them, instead of scrolling listings. So, what can you read? Well, that's part two. And it's the intellectual center of this episode. So write this down. The three condition test. A wide spread becomes a warning only when three things move together at the same time in the same segment. Condition one the spread is widening, not wide, widening. Asking prices pulling further and further away from where deals were actually closing. So the direction is not level. Condition two, the days on market are increasing. The airplanes aren't just priced above the clearing level, but they're sitting. The negotiation gap is showing up in the calendar week by leak, listing by listing. And then condition three, well, its closed volume is thinning. Fewer actual transactions closing. The market is voting on the asking structure by not buying. Any one of these is noise alone. Right? The spread widening on its own could be a couple of delusional sellers skewing a thin sample. Maybe days on market stretch on their own. It could be seasonality. Could be pre-buy slots are backed up at that given point in time. The volume thinning on its own. It could be, I don't know, rate spike freezing, financing buyers could be an election year. It could be August when things are really slow. And notice the test is directional on purpose. Every condition is a trend. It's not a level. I don't care that the spread is wide. It's always wide. I don't care that an airplane took four months to sell. Some always do. I care whether this quarter looks worse than last quarter on all three dials at once in the same segment. That's also why you can't run this test on the market. The market is not a thing that clears, right? Segments clear. A test runs across all of business aviation will average a healthy segment against a sick one and tell you everything is fine. That's why when you read these silly marketing reports, they're always giving you BS. The same way an average built across the eight twelve Ask and every eight twelve sale would tell you that the car is worth about eight hundred grand a number which I remind you, nothing is listed and nothing is traded at. But aggregators lie by construction. If you run the test, they narrow. But all three moving together, the spread widening while airplanes sit longer and fewer deals close, that's the cascade signature. That's what it looks like in our data. When an asking structure has detached from its transactional record and the market underneath it has stopped ratifying it. That's the exact condition the Ferrari numbers are showing in the public, asking prices above the all-time high recorded high, inventory accumulating, and a benchmark that keeps drifting away from the windshields. And here's why I can talk about this with receipts instead of vibes. Measuring those three conditions is literally what the VREF transaction database is for. This year, business jet transaction volume year to date is down almost 19%. Light jets down 18%. Mid-size down 25% and a half. Heavy, well, they're down 13%. Mid-size is transacting below its COVID year pace. Meanwhile, inventory as a percentage of the fleet is grinding up through 7% in light and mid, and the days on market have been stretching all year. Longtime listeners already know the phrase they use for what happens when sellers anchor to a market that stopped existing and buyers refuse to meet them here. The standoff, deals don't reprice, deals just don't happen, and volume is the thermometer. So run the test against what our own data has been saying all season and parts of this market. And if you heard the last episode, you know precisely which parts the spread is widening. The days are stretching and the volume is thinning all at once, all three conditions together. I'm not going to get into the September numbers today because that's going to be next week's show. So today's point is the framework. What you saw happen to that Ferrari's asking structure is not exotic. It is what our industry does chronically. Business aviation manufactures the appearance of value every single day on every listing site and every static display. And parts of it are doing it acutely. Right now, with all three conditions lit, the difference between chronic and acute is the three conditions moving together. And that difference is measurable. It's not a vibe. It really is measurable. Part three. New airplanes versus used airplanes. And by the way, the term pre-owned is so goofy sometimes. Let's just call them used. That's what they are. So we have new airplanes versus used airplanes. Keep them separate. Because the analogy bites differently on each side. The used market is where the cascade lives for exactly the reasons we said. Asking price referencing asking price. With no comps and very patient sellers. That's where you run this test. The new market, well, it's got OEM backlogs with delivery positions, and it's structurally different, and the difference matters. An OEM backlog is not a wall of asking prices, it's a book of signed contracts with deposits attached. With real parties and real money, and then there's real delivery obligations with those contracts. When a manufacturer says the line is sold out to 28, that's executed paperwork. Ratified by a counterparty at a signing, it can soften and it can slip, but it fails differently and more slowly than an asking cascade. So keep the two separate, because sellers love to borrow the backlog's credibility to defend a used market asking price. And those are not the same number. Which is also why a lot of the garbly gook that you read about these market reports always refers to new aircraft trying to make the pre-owned or used market look better than it is. So where the Ferrari mechanism does bite on the new side and bites it hard is one specific place. The secondary market delivery positions, which I would refer to as slot trading. When the guy holding a 27 delivery position offers in it a premium, ask yourself, what's that premium priced off of? Because there's no closings. There's barely any public record of what slots actually change hands for. It's priced off what the last guy asked for his slot. Ask referencing ask, referencing, ask, referencing, ask. In a market with no price reporting. No central record. And buyers convinced the number must be real because everyone's quoting it. That is the listing cascade in its purest form. Purer than the Ferraris because with the car there's at least an auction record to check. A delivery position has no benchmark at all. If you are buying or selling a slot right now, you are operating in the least price discovered corner of this entire industry, and you should behave accordingly. Demand evidence of actual completed slot transfers, not quotes. Quotes are free, closings are facts. And one more wrinkle on the slot market, because it compounds. A delivery position's quoted premium feeds back into the used market too. When everybody knows a 27 position trades at a seven-figure premium, the owner of a two-year-old airframe of the same model reads that as a floor under his own asking price. My airplane's here now. Surely it's worth the new price plus the premium somebody's quoting for the privilege of waiting. Now an unverified quote in one market has become the anchor for an asking price in another. That's the cascade jumping between markets. Asks in the slot market referencing asking prices. Then used market asking, referencing the slot asking prices. Two layers of hope, zero closings, and the whole structure is quoted with the total confidence at every static display in the hemisphere. Which sets up the obvious question: how do you run any of this on your own airplane? Condition one requires knowing where deals actually close, and that's precisely the number the windshields won't tell you. It's also exactly why we built VREF. VREF online membership is It gets you current values. We give you historical trends back to delivery, operating costs, fleet data on virtually every aircraft flying. It's the same platform the banks and insurance companies use. It's the same numbers they pull before they'll touch a deal and when there's real money on the table. Buying, selling, refinancing, litigating. You'll want to get an accredited appraisal from someone whose number gets tested in courtrooms, whose gets tested in loan files, not just in hangar conversations. That's the difference between evaluation. And an opinion with a v ref logo on it. So go to VREF.com. Every number in today's aviation segment came off that platform. And I'll say what I always say: don't trust me, check me. So let's land this. No forecast today, no target, no date. That comes next week. No, here's when it corrects. Anybody who gives you those three things off the back of a podcast is doing entertainment. And I promise you, what I'm handing you instead is a test. Because The test is the part you can actually use. Three conditions for your segment, not the market, your segment, your model, your vintage, your year. One is the spread widening, not are asking prices optimistic, because to be honest with you, they always are. And they pull further away from closed deals than they did six months ago. You need real closing data for this, which means V ref, your lender's appraisal file, or one of the few brokers honest enough to show you sold comps instead of active listings. And if someone supports a price only using things currently for sale, you're watching a cascade in real time happen to you. That is asking prices referencing asking prices performed live, right for your benefit. So, number two, are the days on market lengthening? Is the public checkable for free? You betcha. Track the listings in your segment. Are the same tail numbers sitting there after 90 days later with a price improved banner or lowered price or Must sell. A price that gets improved three times wasn't a price. It was an opening position. It was aspirational. In a negotiation, the market declined to attend. Number three, is closed volume thinning? Right? Can you count actual transactions in the segment versus the same window last year? And I'm not talking about listings. I'm talking about actual closings. If volume is off sharply while asking prices hold firm. The asking structure isn't strength. It's a standoff wearing strength's clothes. One condition, noise. Two, pay attention. All three moving together. You're looking at the A12 GTS with wings, guys, and every decision you make, pricing a listing, timing an upgrade, extending against the residual value, should be made against closed data, not against the consensus of hope with an asking price. So, what you do with a positive test depends on your seat. But the principle is the same in every chair. Change which number you argue it from. If you're selling into a segment failing all three conditions, price from the closings and transact while your listing is still fresh. The Cascade's consensus will not write you a check every month, you defer, and you have to deal with its carrying cost. If you're buying, negotiate from the closed comps and the calendar. A seller can argue with your opinion, he's entitled to, but he can't argue with 90 days of his own listing sitting still. And if you're lending or insuring, re-anchor the file. A residual assumption that traces to listings from a cascading segment isn't conservative, optimistic, or aggressive. It's just kind of silly and it's unsupported, which is worse than any of those, because it fails really quietly, often silently, until the day it fail it fails loudly. And the reason that I think this test matters more in aviation than anywhere else, our market has no auction tape to save you. That Ferrari's asking structure floats as much as 80% above its own transaction record, and any buyer can check it in 30 seconds on a public website. Your airplane has no such website. In aviation, the appearance of value can be manufactured and maintained for years before the record catches up, which is exactly why the discipline has to come from you, from your lender, and from the data built on closings. The sellers are not going to volunteer it to you, and the windshields never do. That's the show. One artifact, one counterexample, one test, not a single prediction, which I know disappoints exactly half of you, but next week it won't. You'll be really thrilled. Next week is a big one. It's our mid-year marketing update and value update. You don't want to miss it. And if this episode changes, how you read the next asking price you see on a ramp, or God forbid if you're still using controller, or on a windshield in Palm Beach, do the thing. Follow us, like us, subscribe us, leave me a review, send this one to somebody who's about to price an airplane off the comps that haven't sold. And guys, keep the mailbag coming. Next week, we're back in the V Ref database and the best episodes of the show start with your questions. I'm Jason Zilberbrand. This has been the truth about the market. The market doesn't care what you're asking, it only cares what sells. Until then, I will see you next week. Fly safe and stay smart.