There have been several stories too big to fit into one “Legal Files” column, but the biggest of them all is the 2004 Ferrari Enzo that Stefan Eriksson crashed into a power pole at 199 miles per hour on the Pacific Coast Highway in Malibu, CA. That story was in “Legal Files” in September 2006 (p. 28) and October 2006 (p. 26), and it resurfaced in the March 2007 (p. 30) and November 2007 (p. 36) issues. Photographs of the crash scene were amazing: a red Enzo sitting in the middle of the road, split behind the passenger’s compartment into two […]
There have been several stories too big to fit into one “Legal Files” column, but the biggest of them all is the 2004 Ferrari Enzo that Stefan Eriksson crashed into a power pole at 199 miles per hour on the Pacific Coast Highway in Malibu, CA.
That story was in “Legal Files” in September 2006 (p. 28) and October 2006 (p. 26), and it resurfaced in the March 2007 (p. 30) and November 2007 (p. 36) issues.
Photographs of the crash scene were amazing: a red Enzo sitting in the middle of the road, split behind the passenger’s compartment into two pieces resting some 600 feet apart. A concrete power pole was broken in two, with the bottom half lying on the ground and the upper half suspended from the wiring.
The Enzo’s engine, and numerous other pieces of the car, were scattered along the road for 1,200 feet. Standing in the middle of the carnage were two men: Bo Stefan Eriksson and Trevor Karney.
As the story unfolded over the months and years, we learned that Eriksson had a substantial criminal background, reputedly as part of the Swedish mafia. Unpaid banks and creditors, unhappy investors, unsavory characters and defunct companies were all left in the carnage.
The Enzo went back to the European bank that owned it, and Eriksson made a plea deal that netted him three years in prison, three years of parole, a fine, restitution and likely deportation.
Now the Enzo has risen from the ashes. RM Sotheby’s sold the car in Paris on February 3, 2016, at a price of $1,734,436.
Rising from demolition
The Enzo had been completely rebuilt at the Ferrari factory’s Ferrari Technical Assistance Service. Amazingly, the car was restored to as-new condition with Ferrari Classiche certification.
The auction catalog description explained that the Enzo had come to the United States, “where it was unfortunately damaged in a road accident” — perhaps a bit of an understatement. But RM Sotheby’s did an exemplary job of making the reconstruction clear by displaying the Ferrari Classiche binder, which explained that:
- The original chassis (carbon fiber tub) was repaired in 2006 by Zanasi in Maranello.
- The body is not original to the car, but is correct and was repaired by Zanasi in 2006.
- The powertrain is original.
As part of the process, the Enzo went through a color change from red to black (perhaps Resale Black has supplanted Resale Red). The Enzo also sports some special features installed during the restoration: satellite navigation, Bose stereo, back-up camera, power windows, and a carbon-fiber rear spoiler with “Enzo Ferrari” script.
With a clear title as well
Interestingly, title passed by means of a clear, unbranded French title. A similar damage and repair history in the United States would usually result in a branded, or salvage, title.
But we don’t know how that would play out in Europe, and we don’t know all the particulars about how the Enzo went from Eriksson to the factory restoration to the auction.
We do know that in 2006, the Enzo went back to the European bank that owned it. Was it insured? If not, even in the United States, there may not be any mechanism to brand the title if ownership did not pass through an insurance company. If you wreck your car — and you pay a shop to repair it — the car is never “totaled,” and the title stays clean.
The poster child for diminished value
We have every reason to believe that this Enzo was in better-than-new condition, and the factory rebuilt it to the highest possible standards. It undoubtedly looks and drives like a brand-new car, except that the drivetrain has 2,500 km (1,553 miles) on it. It was well presented at a very well-attended auction by an extremely professional and capable auction company.
Still, it sold at a very substantial discount from the value of an undamaged Enzo. This Enzo may be the poster child for diminished value.
I consulted SCM’s in-house valuation guru, Donald Osborne, ASA, who made a number of interesting comments:
“Diminished value is definitely real, no matter what your insurance company wants you to think. You can find and buy near-perfect, never-damaged Enzos. Why would you buy one that’s been damaged and repaired unless you saved some money on it?
“Diminished value is not a single thing, and it differs depending upon a variety of factors. Chief among them are:
- The nature of the car — a Toyota Camry takes less of a diminished-value hit than something like a Carrera GT (or an Enzo). Camry buyers generally don’t care as much.
- The amount of the damage — the heavier the damage, the heavier the valuation hit.
- Who made the repairs — a factory re-do takes less of a hit than a Jones Body Shop re-do.
“Determining the amount of the diminished value requires that all pertinent factors be taken into consideration and properly weighed. You can’t just look at one of them or use a standard formula.
“Totally original cars suffer the greatest diminished value. In many cases, the value of these cars is their originality, and that has been lost. That is why you seldom see diminished value in classic cars. Worst case is, they just get re-restored.
“The factory restoration of this Enzo is a “betterment,” which actually adds value. This Enzo is in better condition that it was before the crash, as everything has been fixed and the factory can actually build a better car now than it could in 2004.
“It’s hard to say, but the notoriety that will stay with this particular car, based upon its former owner and his and its history, may always be a valuation negative.”
Osborne concluded that, at the roughly $1.7 million sale price, this particular Enzo was discounted by about 40% compared to the roughly $2.7 million that an undamaged version would be expected to sell for. That’s a very strong discount, especially after considering the factory betterment.
Calculating the discount isn’t all that easy here because of one other factor. Osborne explained that, generally, the value of a car declines with the number of owners.
The fewer owners, the better
A 1,553-mile, near-perfect, one-owner Enzo would push $3 million in value today. A two-owner version of the same car would probably bring around $2.7 million. A three- or four-owner version starts to approach $2 million. Thus, the greater the number of previous owners, the lower the value, and the diminishment of value becomes smaller.
It isn’t clear how many owners this Enzo has had. We don’t know if Eriksson was the first owner, but that seems doubtful. Did he even count as an owner, or did the bank own the car all along? Does the bank even count as an owner? The bank probably didn’t have the car repaired, and it probably sold the Enzo to someone else before the restoration began. The Enzo was reconstructed in 2006 — how many owners has it had since?
But even with these uncertainties, this Enzo does seem to set a standard for diminished value.
Negotiating with an insurance company
Let’s take a more mundane illustration of this concept.
Recently, my wife and her dog were sitting at a red light in their six-month-old, 7,000-mile Dodge Grand Caravan. A trailer missed the turn and destroyed the left front of the van. The driver’s insurance company admitted responsibility and promptly paid about $9,000 to a very capable local repair shop to make the van “as good as new.”
The adjuster got a little less friendly when I started talking about diminished value, and he told me he needed some sort of documentation.
The Ron Tonkin Dodge manager gave me an ambitious pre-loss value estimate of about $27,000. SCMer Matt Crandall, owner of Speed Sports Inc., gave me an opinion that the value was diminished by 30%, pointing out that they have a hard time getting customers to even consider a used car that doesn’t have a clean CARFAX report.
The adjuster responded with a $35 “diminished value report” from an outside vendor, who fed the repair estimate and the details about the van into its proprietary computer program. The program calculated a diminished value of $2,340, which it quickly doubled due to the excellent condition of the van. I pointed out that anything that needed to be doubled in order to keep a straight face was obviously garbage.
The adjuster disagreed.
I responded by retaining a local appraiser — one who does a lot of work for insurance companies. The local appraiser calculated a 25% diminished value off a $25,500 value. A couple more times back and forth, a litigation threat, and a suggestion we just round it off resulted in a $6,000 settlement.
That’s less than the actual value loss, but we aren’t selling the van.
As time goes by, the value loss will diminish as a percentage of the depreciated value, and my wife can actually come out ahead. Now, if I can just keep her and her dog from noticing that Dodge is redesigning their vans… ♦
John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.