Month: March 2018

As new car manufacturers continue to broaden their line and ramp up production in order to gain marketshare, it brings to mind the question: how does this affect the value of pre-owned cars? What does it do to the current cars on the pre-owned market and how does it change? At the end of the day, it’s the same philosophy that we often talk about: Supply and Demand. Simple economics–as long as the demand exceeds the supply, then values will remain stable. However, when supply far exceeds demand, that’s what generates all the rebates and low prices, diminishing the value of all of the products. As a result, used car prices go down and new car prices go down. The reason why a lot of the domestic manufacturers and these super high-volume brands all have big rebates is because the supply heavily outweighs the demand–They have so much inventory they have to discount it to get rid of it. So what happens next? When you start selling new cars for $15,000 off of MSRP, whats a one-year-old one, same make and model, going to be worth? How many times have you seen a recent year model and thought, well, I could buy a new one for virtually the same price…so why would I buy the used one? This starts to kill the market.

Another thing that happens when these manufacturers broaden their brand to this degree, is they can confuse customers. Someone who wants to spend upwards of $100,000 on a highline car, a BMW, a Mercedes-Benz or a Lexus, for example, they can often see similar models out there on the market for almost half the price. This diminishes that value of the market in general, so if there is an entry-level, $20,000 Mercedes-Benz, it makes the aspirational $200,000 Mercedes technically worth less because it is the same brand. There is an element of exclusivity of the brand that inevitably deteriorates. It’s no different than a big-time designer going into outlet stores, it diminishes the value of that particular brand. The goal is to keep price integrity and keep values high, and that is all done by the supply and demand ratio. The only way to maintain high prices is to have a smaller supply of product than there is a demand for it.

As it pertains to the exotic market, we couldn’t help but wonder, is this the direction we see the Ferrari brand going in with some of the mass-production of newer models? We can’t say for sure, but it is definitely nerve-racking, considering Ferrari’s production is the greatest it has ever been. What makes a 1987 Ferrari Testarossa so special is there are just not that many of them out there. Contrarily, you can find a plethora of used Ferrari 458 models on the market, so you can see how people naturally gravitate toward the model that there are not as many of–it’s more exclusive. Even more worrisome, there is talk of Ferrari ramping up production even more, and potentially offering an SUV. In other words, Ferrari is doing things to broaden their customer base, which is understandable, since it is a publicly traded company and they have a stock price to worry about, but it is not necessarily a good thing for the market. Another thing to think about: The manufacturers make money when they sell their cars to the dealers, they don’t then make money again on the used car sale, aside from selling parts, so Corporate Ferrari is not as concerned with the pre-owned Ferrari sale.

The good news is, this only bodes well for older exotic cars, whether it’s an older Porsche, an older Ferrari 360, and certainly an older Ferrari Testarossa. These older cars continue to go up in value with the mass-market production of newer, more modern models, as it makes these older exotics even more special and exclusive.

Why does it take people so long to buy a car in today’s market? Why are people spending so much time online prior to going to the dealership, before they even see the car they want? We started to wonder why this could be…Is the reason people go above and beyond to make sure they study the market before buying because there is so much information now available? Maybe. Could this be driven by the fact that the car business, and dealerships as a whole, have a bad reputation? Possibly. We think both are true.

Everyone talks about how wonderful the internet is, but sometimes there is just so much information out there that it really does hinder people from making a decision because they’re so afraid of making a bad choice. With the broad offerings from every dealer, people don’t really know what to choose, causing analysis paralysis in a lot of instances. People feel like they have to look at everything, weigh out every single option, out of fear of making a mistake. In addition, the automotive industry unfortunately has a bad reputation, and people assume that car dealers are always trying to take advantage of them. While this is of course not always the case, this idea has taken root enough in peoples’ minds that they take every proper precaution to ensure they know exactly what they’re looking at. The research that is now being done at home before heading to the dealership has been taken to a whole new level. This can be both a good and bad thing.

The fact of the matter is, it is never a bad idea to educate yourself prior to buying a car. In the exotic market, we find that most of the time, customers come into our dealership with a wealth of knowlege about the used Ferrari they are coming to see. They may even know more about the car than we do sometimes, because they have compared our 2009 Ferrari 430 Spider against every other one on the market. Most of the time, the customers do their research…a lot of it. It is important to know exactly what you’re looking at, narrow down your choices, and figure out what is important to you before going to a dealership, so you are able to make an informed decision that you are excited about. In the world of luxury cars, this is especially important, considering the steep financial investment that is involved. If one of our customers is about to buy their very first pre-owned Ferrari 360, we want them to be sure it’s the right one.

At the end of the day, it all boils down to doing your homework and finding people you trust. Whether you’re buying an every day driver at your local Honda store or you’re buying a used Ferrari, our advice is simple: do your research beforehand without letting it overwhelm you, and find a professional to help guide you. For example, if you want to buy a house, you’re going to hire a real estate agent, and they’re going to help you understand the area, they are going to tell you everything you need or want to know about the house, and walk with you through the entire process. It is the same thing with buying a car–find someone who can walk you through the process, someone whom you can trust and who knows the market. In conjunction with your own research, seek the advice of a professional before going and buying a car, and it would eliminate a lot of the legwork that you have to do.

When it comes time to buy a car, new or used, the dealership you buy from can determine what kind of experience you will have. The question people are often faced with when they’ve decided the kind of car they want is: Do I buy from a franchise store or an independent dealership? There are several differences between the two, pros and cons for each, and some could argue that they would never deviate from buying at a franchise store, no questions asked. Now, we may be a little biased, but when it comes to buying a used vehicle, especially in the exotic world, an independent dealer is the way to go.

Franchise dealerships tend to have an advantage because potential customers have heard of their franchise name, and either associate it with personal previous experience, or the experience of others. Or, they assume because they have ads on the radio or on TV, it must be better. They assume that if a used car is from a name-brand retailer that’s affiliated with a manufacturer, that the quality of the cars is better, that they are in better condition. I often apply this sort of thinking when grocery shopping–I’d rather have the name-brand cereal than the store’s version of it. Why? I’m just more comfortable with it. Have I ever tried the other kind? No. Any desire to even explore that as a less expensive option that is essentially the exact same thing? No. When thinking about it this way, I can wrap my head around why people lean toward what they’re comfortable with. It makes total sense. Why would I buy my first pre-owned Ferrari 360 from a dealership I’ve never heard of instead of going directly to a franchised Ferrari store?

What’s great about an independent dealership, especially in the exotic market, is we know each and every car backwards and forwards–we know its history, where it’s lived, oftentimes we know the previous owner personally, or at the very least, know how the car was maintained and where. We say it all the time: every car has a story to tell, and our job is to tell its story and find the person who wants to be a part of the car’s journey.

As an owner of an independent dealership, I am passionate about the product we sell and the customers we sell to. Whether it’s a novice Ferrari-lover who wants a 2015 Ferrari F12 Berlinetta, or a veteran exotic-enthusiast coming to buy the iconic 1987 Ferrari Testarossa, it is vital that we provide a sales experience unlike any other, one that is the antithesis of what people believe the car business is all about. It is our job to answer all of the customer’s questions, tell them everything they need or want to know about the vehicle they are considering, making them completely comfortable and happy. At Merlin Auto Group, we are able to offer that kind of experience.

Why do people care so much about the number of owners that a car has had?

It’s an interesting question because in the exotic world, it is not uncommon for people to buy and sell their exotic cars regularly. That Ferrari F430 Spider that was the must have in August might just not be quite right for Fall.  Many of our clients trade often, buy a car for six months, keep it, get tired of it, and get rid of it. As a result, there’s nothing to say that there is anything wrong with that car. However, the car that’s had three or four owners in its life–is there reason to explore? Yes, absolutely. But is there reason to stay away from that car entirely? Does multiple owners mean the car is in bad shape? No.

Here’s why it can be scary, or here is the risk involved: We all know that maintaining a Ferrari or any exotic is different than maintaining your Honda Accord. What often happens in these instances is people tend to trade their cars when they find out their car needs something in service, or is close to needing something done service-wise. No different than when people trade their car right before its about to run out of warranty because they do not want to be the ones hit with the big expense. Take a Ferrari 360 that has ten owners, for example. That car could have gone through the ownership of ten different people, none of whom did any kind of preventative maintenance on that car, other than oil changes, brakes, etc., and every one of whom kept the car for a short period of time and got rid of it because they did not want to do whatever major service was necessary. In an instance like that, the car is probably going to be cheap on the market; however, it has ten (or however many) years  worth of deferred maintenance, which will then cost the new owner a fortune to get the car to a point where they can then drive it, enjoy it, and keep it. In our experience, this seems to be the biggest obstacle, or thing to observe when talking about the number of owners a car has. If a car has five owners with extensive service records from each owner, you look at the car and determine that everything is up to date, the car doesn’t have any deferred maintenance, and the pedigree is fantastic, who cares if it’s had five owners?

We get really excited about one-owner cars because you have a better understanding of where the car has been, who has maintained it, the level to which it has been maintained–that’s where the value comes. The fear comes with the multiple-owner cars if you dont have the information as to how the car has been maintained, and deferred maintenance on an exotic car can be more costly than the actual purchase price of the car.

The used car market is all about supply and demand–it is something we say over and over again about used cars in general, including the collectible car market. So, how will the recent hurricanes in Texas and in Florida affect the used car market? Two huge metropolitan markets have been severely devastated by the hurricanes, resulting in the loss of homes, possessions, and hundreds of thousands of automobiles. As it pertains to cars, the demand for new and used vehicles will sky-rocket, while the supply of used cars will go down. The new car manufacturers offer a plethora of cars, but Texas and Florida are incredibly large used car markets–not only cars that people own, but dealership cars, as well as auctions that have thousands of cars on the ground, are going to be devastated, and potentially have total losses of vehicles. Inevitably what happens in situations like this is the supply goes down while the demand goes up, as people are going to need to replace their cars or means of transportation  By the end of the year, and possibly even before, we predict the prices of used cars is going to rise exponentially. There is also going to be additional expertise necessary to make sure you don’t end up with a car that may not have been a total loss, but still has had damage from the hurricane, that is merely being passed off because the demand is going to be so high. So, in thinking about supply and demand as far as regular cars go, the pre-owned market is going to surge, just because of the size of the two markets that are going to be predominantly affected by the hurricanes.

Now, when you think about how the collectible and exotic markets are going to be affected, it’s interesting because both in Texas and in Florida even more so, there is an enormous concentration of exotics–from collectible old exotics like a Ferrari 308, to newer exotics like the Ferrari 458, and everything in between. There is also a concentration of wealth in both areas, and as a result they house extensive car collections for private individuals, as well as exotic car dealerships. When talking about units in operation in the business (i.e. how many cars are on the street), there are a ton of exotic registrations in Texas and in Florida. While the exotic and collectible car market already has a short supply by nature, if these cars are destroyed or are total losses, the supply will obviously go down even more, causing the demand to shoot through the roof, not to mention the value of the cars themselves.

There is, of course, no way to tell for sure what will happen to the car market as a result of the hurricanes. What we know for sure is there is going to be a disproportionate number of cars destroyed to ones that are available. So, by applying a simple economic theory to the used car market, exotic and otherwise, we can predict that used car prices will rise, as the demand for them increases and the supply decreases.

Are aftermarket modifications a good idea or a bad idea? As a company that specializes in pre-owned cars, this is a question that comes up a lot. We take in customer trades all the time and help them get into the car of their dreams, whether its a 1987 Ferrari Testarossa or a later model Ferrari California, our mission is to do whatever we can to make the car-buying (or car-selling) experience enjoyable and exciting.

That being said, a lot goes into this process. Evaluating a trade can sometimes be a little tricky, as the car’s value is under scrutiny because of aftermarket modifications that the owner added while in their care. While cognitively it would make sense that money you added to the car in modifications would then be added to the selling price, that is not always the case, unfortunately. There are two reasons for this:

1.  Not everyone wants the car modified exactly like someone did. If they are looking for a particular year, make and model, more often than not, they are going to opt for the one that doesnt have a ton of add-ons, one that they can modify themselves or have in its all-original condition.

2. There is no way to tell how these options were installed or who installed them. Records of installation can be provided, of course, but that doesnt always settle the stomach of the person out-of-state who is about to spend a ton of money on your car.

So, in short, we are not saying there is anything wrong with adding aftermarket modifications to your car. We are just pointing out that as an investment, they are not necessarily a wise investment choice, because at the end of the day, the car was tailored to your wants and needs, and not the next owners.

This brings us to the next question that comes up frequently, which is, when it comes to fixing and maintaining your car, are OEM parts or aftermarket parts better?

An aftermarket part is one that was not sourced or made by the manufacturer. In our experience, aftermarket parts tend to get a bad rap, probably due to lack of knowledge or understanding, and are often thought of as cheap products that will cause more damage to your car than good. We have found that there are plenty of well-made aftermarket parts and products available if you take the time to look. The key is to be familiar with what you’re looking for, and if you’re not, find a mechanic you trust to help guide you. Some advantages to aftermarket parts are they tend to be less expensive, there is more variety and better availability, and they can often be of equal or greater quality than OEM parts (this is due to aftermarket companies reverse-engineering parts to work the weaknesses out). Something to look out for with aftermarket products is the quality first and foremost. A disadvantage to non-OEM parts is that there is an overwhelming selection, so stick with aftermarket brands that you are familiar with or that come recommended by someone you trust to ensure the quality is good.

As far as OEM parts go, there are definitely some advantages/disadvantages to be aware of. The great thing about OEM parts is that they are made by your vehicle’s manufacturer, so they match what your car had originally. This takes away the stress of finding a good part for your car and assessing its quality, since all you have to do is call the dealership and have them handle it. This does have its drawbacks, however, which are that they tend to be more expensive (about 60% more expensive), although dealers are making adjustments to compete with independent shops. Another thing to watch out for is the quality. The idea that aftermarket parts are cheap and inferior is not always the case, so when buying an OEM part you may be paying extra just for the name. The manufacturer can make mistakes in part production, evidence of this is the number of vehicles called back due to defects.

Important: When it comes to collision repair, we always advise sticking to OEM parts, since aftermarket body parts may not fit properly, and can affect your cars value when it comes to resale if they are aftermarket.

So, in short, the consensus seems to be that while aftermarket modifications do not add value to your car in terms of resale, it should not deter you of adding what you want to your car. Just something to be aware of when determining the cars price when you are reselling. As far as aftermarket parts go, as with anything else, do your research, and you will find the right fit for you and your car for the right price.