THE GOOD, THE BAD & THE UGLY by bill orth
A perfectly reasonable young couple who were looking at a 308QV we have for sale recently asked me why we don’t offer the same sort of used-car warranty they had found at other dealerships. The point was that the other used cars they were considering—a BMW cabriolet and a Porsche Boxster—were covered by pretty comprehensive assurances, whereas our car, although selling at a similar price level, was not. While it may seem logical to equate different cars that share a price point, a problem crops up when one is eighteen years older than the others, even if it has about the same mileage. As we talked about this, I thought that some commentary on the subject might be of interest. Beyond the inherent engineering and design differences between two of the world’s best-built recent-model cars and what was considered acceptably reliable high tech in 1982 is a considerable gulf. Let’s get back to those warranties for a minute and see how they work.
Many large multi-location dealerships, such as the Elway group and the Burt organization here locally, offer very consumer-friendly environments. They have all-your-money-back-within-three-days-if-you-don’t-like-it programs; extended-term service agreements; free oil changes for as long as you own it and other worthwhile bonuses to those who purchase their new-car trade-ins. Obviously, tactics like these are intended to earn business and maintain customer satisfaction and are very effective. But isn’t it risky to the dealer? Actually, such apparent largesse is made possible by simple economies of scale. These megadealers often sell 500-800 new cars at each of their locations every month! Sometimes more! This volume of business creates a huge inflow of trade-in autos that must be dealt with in some fashion, since they represent a substantial amount of tied-up capital. Up until about ten years ago, the majority of these cars would be sold at wholesale auctions in order to recoup the cash and to keep the dealership’s focus on the selling of new cars., their core business. However, the realization dawned that the retailing of many of these used cars, even if done at slim margins, could generate a substantial amount of cash flow and profit for these big operators. Particularly since the sale of each used car opened the door to additional revenue from financing, insurance and service agreements.
Because of their tremendous volume, the megadealers can offer meaningful warranties on their resales because there will always be more than enough profitable ones to make up for the occasional one that pukes its transmission. Smaller dealers do not enjoy those odds and must limit their liability by being tougher about what they warrant. The ultimate protection, of course, is the “AS-IS” disclaimer. Small stores that may only sell a relative handful of cars each month can’t afford to have an expensive hiccup, so they retail all their older cars AS-IS. The attraction of much more affordable pricing draws in younger buyers and those who don’t mind doing some fixing-up on their own if necessary and who will accept higher mileage in return for lower payments.
Auto dealers of every size are cognizant of their customers’ expectations regarding after-sale support on used cars and try to match their inventory to these expectations. Trade-ins will be given routine servicing and inspections to assure their road-worthiness and a sharp detailing to highlight their appearance. But sometimes a trade comes along that is old enough that efforts to predict or prevent any possible failures will be too costly and the odds of customer satisfaction too long. (What’s the likelihood that a power window will fail on a three year-old car, versus that of a fifteen year-old one?) Consequently, many upscale dealers simply don’t sell older cars in order to avoid these potential problems, although some will open up a separate lot, often under another name, at which they will sell lower-tier cars to a less discriminating clientele. (Locally, that would be the flamboyant “Dealin’ Doug” who has his satellite operation called “Kid’s Auto,” at which he markets older cars to folks with credit problems and other reasons to shop for bargains and where he isn’t as obligated to long-term service as at his franchised locations)
So, what’s all this have to do with Ferrari? Well, as a matter of fact, my first three Ferraris were older “AS-ISers” that made it possible to own them, since a problem-free example of each car was out of reach. The first was a rather tired 330 America with weak paint, too much exhaust smoke and a myriad of lesser problems—but we drove the car across the country and back! The second was a somewhat rusty 330GT that also had some engine issues, but a big investment of “sweat equity” and some money produced a rather nice car that actually won a few awards. The third was a very nice looking 365GT that happened to have a fragged engine. After an overhaul done by yours truly (and a good friend) we went on to enjoy that car reliably for nearly ten years. Should testimonials like these encourage any budget-minder shopper to buy a project Ferrari? Heavens, NO! These cars worked for me because I had the fortunate advantages of garage space, tools, a father who had taught me to work on cars since I was ten years old and a subsequent fifteen years of experience working on them. I did have a talented friend’s help, but I did not have to pay too many others to do things on these cars for me. Lastly, I had more time available than money, so the DIY approach was the only way I could have a Ferrari and that provided the necessary motivation to see the projects through.
Therefore, anyone who might have a similar profile of assets and circumstances can certainly enjoy a car, boat, or house that would be otherwise unaffordable—after all the work is done. Those lacking these talents but whose efforts have made them more financially successful are nearly always much more happy buying the best example of whatever they crave and enjoying it immediately, without the “sweat” part or the dirty fingernails!
-- Bill Orth --