My column takes a slightly different tack this month, as SCMer Aaron Greenburg sent in this letter asking for some advice on a 1988 Ferrari 328:

I’m interested in trying to put a value on a Ferrari 328 that I inspected the other day. The car in question is a 1988 targa, white over black, and I’d describe it as being in “rough driver” condition, which means:

I spotted a lot of bodywork, some paint runs, blends, and white paint in some of the wrong spots (as in the underside of the spare tire well lid).
The suspension bushings are all worn and squished out.

There is an exhaust leak, which seems to be coming from the front cylinder bank manifold.

The underside is beat up, dented from improper lifting and laden with underseal and some surface rust here and there.

The door bottoms have been worked and the engine compartment lid sits proud at the upper left corner near the buttress, and the rear bumper is pushed in just slightly on the right side.

Finally, the engine is dirty with lots of oil leaks, I’m sure it needs a major done and who knows what else “while you’re in there....”

Now, on the plus side, the car actually drove fairly decently. There weren’t any knocks or clunks in the suspension, the gearbox felt good and grabbed all gears, including second, just fine from dead cold. The engine idled smoothly, although I detected a slight hesitation (which did not abate itself as it warmed) on my test drive of the car. It looked like the injectors were recently replaced, presumably in an attempt to fix the running problem. The brakes felt good and the steering was still sharp.

This was kind of a sad story, as the car is owned by a fellow who took it as collateral on a loan for $33,500. As you may have guessed, the guy never paid up, so my client has the car. It seems to me that this “friend” knew he was offloading a lemon, and dumped it on my client, who gave him the loan as a favor. Too bad, really.

The odometer shows 26k miles, but it’s broken, and just inspecting the car, I can fairly reasonably assume that the mileage is probably three times that. I’ve seen and worked on enough 308s in my day to know the difference between worn bushings due to sitting and worn bushings due to use.

The interior is pretty nice, the seats look good, don’t appear to have been redone, and are still nice and firm in the bolstering. The dash, door panels and carpets are in good order, and all of the electronics seemed to work.

So in my effort to deliver the bad news to my client as gently as possible, I am thinking the car is worth maybe $20k at best? Perhaps I need to advise him to throw a set of Blizzaks on it and make it his new winter driver.

And here’s my response, along with some more advice from SCM Ferrari expert Steve Ahlgrim:

Hi Aaron,
Your friend was underwater the moment he loaned $33,500 against this 328 GTS. In the world of Ferrari 328s, the 1989s are kinda-sorta collectable, thanks to ABS brakes and different wheels, but the best-of-the-best, fully serviced 1989 328 GTS would only bring low-mid $40s. A 1988 with miles is a low $30k car, and a car with your needs is a borderline parts car.

After Fiat took over Ferrari, they introduced the dreaded rubber cam belts in 1974, so every 328 is a candidate for a $4k to $8k cam belt-and-more service every three to five years. This represents 10% to 20% of the value of the best 328, and it is 20% to 40% of the value of this car. These servicing costs will keep the car’s value down forever.

CARFAX if you dare

If you really want to confirm how far underwater your friend is, run a CARFAX search. If we had the serial number, we could run it past our fellow Ferrari historians for previous ads or info that would confirm the real mileage and/or damage, but do you really want to know?

The good news is that it is a Ferrari and it runs and drives modestly well, so it’s a driver or a project car candidate. Someone will write a check for in the low $20k range for cheap thrills and the joy of having their first Ferrari. At worst, it’s worth $12k to $14k to a shop willing to invest the money and take the time to part it out.

This car is a poster child for diminishing returns. Any money spent beyond a car wash is wasted.

Here are Steve Ahlgrim’s thoughts:

Every once in a while I come across a car like this. One that’s too rough to restore but too good to part out. The trick is to drive it until it dies, and don’t try to fix it up. You could put $10,000 into it and not increase its value one cent. Worn suspension bushings won’t keep it off the street nor will beat-up rockers. As long as it’s a decent driver, it will find a home.

Ninety percent of 328 buyers wouldn’t touch this car with a ten-foot pole, but put it in front of the ten percent that would, and it will sell. As a parts car, its worth is in the low teens. That’s what the engine and transmission will sell for, the rest of the car is profit. Wholesaling it would be very tough. Most exotic dealers wouldn’t buy the car, and a used car lot won’t touch it unless it really cheap. Figure wholesale at $16,000 to $20,000.

The project-car market

Retail is the only way to get any value out of the car. There are a limited number of buyers who like a project. They’re the guys who have two years work and $25,000 in a kit car that’s worth $10,000 when they’re done. There’s another small group that doesn’t care what a car looks like as long as it drives OK. Snag either of these types and $25,000 is not out of the question.

What the car’s worth depends on what you’re going to do with it, but the $20,000 figure sound like a good place to start.

Heads-up: A VAT on the horizon?

On December 1, 2010, two bipartisan commissions on cutting the U.S. budget deficit both recommended variations on a Value Added Tax. One commission called for a near doubling of fuel taxes.

Another commission called for a 6.5% VAT.

Of the G-20 countries (the top 20 economic powers in the world) only the United States doesn’t have a GST or VAT.

A VAT is like a sales tax in that in the end only the consumer is taxed, but it differs in that it is usually charged at every stage of the supply chain. While, in theory, businesses end up paying no tax, they are responsible for collecting the tax at every stage of the supply chain, and then collecting refunds from the government after the fact. This complicates bookkeeping.

Most American Ferrari collectors I know don’t believe a VAT will ever happen in America. Europeans, on the other hand, are amazed that America doesn’t yet have a VAT.

A United States VAT would affect the Ferrari market in four ways:

It would certainly add to the cost of every new Ferrari, on top of the current import duty, sales tax, registration, gas guzzler fee and so on.

Second, the used Ferrari market would change, as private-party sales would have no VAT, while dealer and auction sales would. This would create a new world of “invisible” brokers.

Third, the Cross-Atlantic trade in anything collectible coming into America would increase in price. Classic car dealers currently control the cross-the-pond market and are happy to work on a 5% to 10% margin. A 6.5% VAT would evaporate most of that margin.

Finally, there would be a VAT on parts and labor on every Ferrari service invoice, which adds to the cost of ownership.

It may be years before the United States has a VAT, but the reality is that taxes will probably go up to pay down the deficit. The Ferrari market could be changed in ways we do not want or like.

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