Articles

Michael Sheehan's Ferraris-online.com Article

Defining the Pre-Purchase Inspection

Almost all shops use pre-purchase inspections as a loss-leader, and so they are motivated to find and recommend any and all needed work

As appeared in:

Sports Car Market—November 2009 issue

Sheehan Speaks

by Michael Sheehan

Does this look like $182,000 to you?
Does this look like $182,000 to you?

Last month’s column detailed a threatened $182,000 lawsuit against a Ferrari shop because of decades-old damage to a 37-year-old car, which was discovered but not mentioned to the would-be buyer during a $300 pre-purchase inspection. The many lawyers I spoke with all declared that any claim against the shop would focus on whether there was an industry standard on what should or should not be included in a pre-purchase inspection (PPI), and whether the shop met such a standard.

In reality, there is no industry standard. Shops have different procedures, buyers have unique requests, and the “must do” list varies from shop to shop, from Ferrari model to model, and from value to value.

What you get for $300–$500

The depth of a PPI can vary substantially. While Ferraris are expensive, they are, after all, “just used cars,” and older cars almost always need immediate post-purchase service work. The older the Ferrari, the greater the chance that the current owner is oblivious to any work the inspecting shop will find. Conversely, the buyer wants perfection, and he wants that perfection built into the purchase price and certified by the shop doing the inspection—an unrealistic expectation. Assuming a minimum shop rate of $100 per hour, it’s hard to justify spending more than $300–$500 for a PPI on an under-$50,000 car, yet it is prudent to spend much more than $500 for a PPI on a $500,000-plus car.

The car’s location can add complications. Is there a competent mechanic in that area? How do you get the car to him? Is that mechanic’s idea of a nice driver the buyer’s idea of a dirty dog? A regional twist is that many California clients believe cars from the Midwest and Northeast have more road rash, suffer more potholes, and count their age in dog years. In any case, picking a shop with an established reputation is mandatory. Once the shop is chosen, most pre-purchase inspections will have the following sequences.

No signed agreement, no inspection

The buyer and/or seller and/or broker(s) agree on a shop and outline what they want the shop to do. Conversely, a large part of the shop’s responsibility is to educate this group on that particular Ferrari’s inspection needs. The shop should expect to spend a minimum of an hour on the phone, plus writing up and faxing the inspection agreement to the buyer. No signed inspection agreement, no pre-purchase inspection.

Test drive and take notes

Once at the agreed-upon shop, the first step is an inspection and a test drive. Ten minutes behind the wheel will tell the basics, but a half hour or more is better to check systems from the radio to the a/c, the windows to the shocks and gearbox, ad infinitum. Expect 30 minutes to an hour or more, including taking notes.

Inspection can take hours… or days

Next, the car goes on the rack for an underneath inspection that includes the lower bodywork, frame, suspension, powertrain, brakes, gearbox, a check for matching numbers, ad infinitum. Once back on the ground, there’s a check of the body lines and panel fit, the engine bay, and compression and leakdown test, if applicable, all while taking notes.

On a 360 Spider, three or four hours should be enough, whereas an Enzo-era Ferrari, which needs the interior removed to get to hidden numbers, can easily use up a day. If you need photos to confirm matching engine, gearbox, and differential numbers for Classiche certification, the photos and paperwork will add many hours. The Classiche certification process is a follow-up to the pre-purchase, and can stretch out for weeks, if not months.

If you want that Enzo-era Ferrari inspected for previous damage, you’ll pay extra to have the wheels pulled off, the inner fender access panels removed, and the inner sheetmetal inspected. Actual inspection time starts at three or four hours and rapidly consumes the day, and more.

An organized seller or professional broker will also have all possible service records available and provide them in PDF format, as copies, or by fax to the inspecting shop for review, consuming another hour or more.

Buyer and seller get the estimated costs

It’s now time for the shop to call the buyer and/or the seller and/or the broker(s) and review problems or recommended work, then make parts price calls and rough out an estimate for recommended repairs, then call back with the estimated costs for recommended work. Total shop time increases a few hours more. Recommended work often results in another round of re-negotiations between buyer, seller, and broker to make a deal. Once resolved, the shop can close out the inspection. When one counts up the hours, it’s clear that $300 to $500 doesn’t begin to cover the time for an Enzo-era Ferrari inspection, and that $600–$800 is more realistic. And if the shop rate is over $100 per hour, that number only goes up.

No inspection at the seller’s home

I’m often asked if we can do or can arrange inspections at the seller’s home. The answer’s no. Obviously a thorough PPI requires a full shop with a mechanic who knows that model Ferrari intimately, a hoist, a compressor for the leakdown, and a serious toolbox. Don’t forget to add in the cost of a $23k SD-2 or SD-3 Ferrari laptop needed for the modern Ferraris (now outdated and just replaced with a $35k Panasonic toughbox, plus a $1k monthly connection fee, plus extra for ongoing software updates).

Every shop I spoke with performs pre-purchase inspections as a loss-leader to get work. Because they also need to cover their backside with full disclosure, the shops are motivated to find and recommend any and all needed work.

Don’t mistake the inspection for a warranty

Every would-be buyer wants to use the PPI as a new-car warranty, but a $300–$500 check-up is not—and never could be—construed as a warranty, especially on an older car.

Neither is a PPI the basis for the buyer to build a case for a free restoration of normal wear items at the seller’s expense.

Additionally, a PPI is not an appraisal, but instead an inspection of the body, mechanical, and operational systems, at that moment in time, and not the shop’s confirmation of ownership or service history, originality, or sales value.

Let’s try to make a case
Let’s try to make a case

Limit damages to cost of inspection

While shops have every motive to find any and all needed work, the threatened lawsuit that inspired this column also demands that shops should mention any previous damage or repairs they find, regardless of any connection to work needed today, simply because we live in the most litigious country on the planet.

A written estimate for every $300–$500 or $1,000 inspection may seem excessive, but shops should have, at a minimum, a standard PPI agreement form. That form should require binding arbitration in the shop’s area. Any act or omission that might lead to liability must materially affect the performance or value of the car, and liquidated damages should be limited to the cost of the inspection.

Keep the shop busy, share the bill

I often recommend that buyer and seller share in the cost of the estimated repairs, because buyers are not nearly as eager to have every aging part replaced if they are paying part of the bill, while the sellers are (begrudgingly) paying for some share of long overdue deferred maintenance. This will not be my first column to prompt angry emails from lawyers who feel I disparage their profession, but that profession serves no one but themselves when a $300 PPI results in a $182,000 demand.