FNA CHANGES THE RULES by bill orth
Ferrari North America recently enacted a program that is going to have significant impact on how Ferrari owners maintain their cars. Following a long-standing precedent by other manufacturers, including BMW, Mercedes, Jaguar, Lexus, Bentley and many others, FNA has launched a Certified Pre-Owned Warranty available on used Ferraris sold by franchised Ferrari dealers. The obvious intent of such a warranty is to offer prospective clients the security of factory-backed coverage should their ‘new’ purchase develop a mechanical problem. These warranties not only offer a benefit to the consumer, but they also represent a powerful marketing tool for the dealer network. Even inexpensive and less-frightening-to-repair autos like Toyotas and Chevrolets are frequently sold to their second owners with similar service policies offered by their dealer network, as consumers like being protected against the unexpected. Over the past several years, although we used to sell quite a few pre-owned BMWs, we now have a difficult time competing against their in-house warranty programs and the late model cars being offered by BMW dealers. Many consumers want a sense of security with a major purchase, and so we have dramatically cut back trying to market these cars, since most potential customers would rather have a factory-certified used car than one being sold AS-IS or covered by a non-factory service contract.
In fact, when I bought a ’99 Jaguar last year that was close to running out of its original warranty, I unhesitatingly paid the premium to extend the warranty. (We have owned other Jaguars!) This prolonged security was available because I bought the car at a Jaguar dealership and I could not have gotten it otherwise. This stipulation is the same with the other manufacturers mentioned above, of course, and while it is certainly a revenue stream for the manufacturer, these warranties have proven to be a product many people want. The cumulative effect has been that non-franchised used-car dealers can now only be competitive with autos that no longer qualify for a factory-backed warranty, due to age, mileage or other disqualifications (like past damage history). It was probably inevitable that Ferrari would develop a similar program for their cars and clients, and it now exists.
On the face of it, a consumer may concede that it sounds like a good idea, and one that may be of interest to someone thinking about buying a used Ferrari—but why should it impact how owners service their cars? The statement above about cars “qualifying” for a Certified Pre-Owned certificate is the key. No manufacturer would want to stand behind a car that had been poorly maintained or had been badly damaged, for obvious reasons. Therefore, a set of criteria is put in place to weed out potential troublemakers. This is no different than an insurance underwriter requiring a medical exam before they will provide life or health coverage on you. Consequently, an automobile under consideration for ‘health insurance’ must also suffer the indignity of a probing examination. Typical requirements are an overall inspection of the car’s operating systems, a compression test, brake and suspension checks and an inquiry into its service history. A CarFax-type search is also required in order to isolate damage victims.
The manufacturer stipulates a checklist to be followed, with minimal acceptable values on the items covered, and equally important is evidence that the car has been maintained according to their schedule. In today’s data-accumulating society, these records are pretty easy to access for most major manufacturers, but a bit less so for Ferraris. This is because Ferrari records all warranty work performed on each of its cars and this info is available to all dealers through their data network. However, routine servicing—oil changes, etc—are not similarly tracked as they are on cars like Audi, for example, which makes maintenance part of their warranty coverage. Any car that meets the program’s criteria for age, mileage and passage of the above scrutiny can have a Certified Pre-Owned Warranty if its purchaser wishes to pay the premium for it. The impact this new warranty will have on Ferrari owners is that FNA has made regular dealer servicing a prerequisite of acceptance into their program.
I should pause here and observe that it has been ruled in courts that a manufacturer cannot require its customers to service their cars within the dealer network, squashing the old threat that if you go to Jiffy-Lube, for example, your warranty is in jeopardy. All an owner must do is provide proof that he has met the manufacturer’s published servicing requirements somewhere, and a related failure must be covered under the factory warranty, and in a dealer’s shop.
But that freedom does not apply to coverage beyond the original new-car warranty. Ferrari North America has taken the position that any car that has not been regularly serviced within the franchised dealer network may be excluded from future coverage. Occasional ‘outside’ repairs and service work will not disqualify a particular car, but any sort of major work—such as replacement of timing belts and other scheduled procedures—will not be recognized if performed outside the dealer network. This will mean that if a car was due for this job, and it was done last week by an independent shop, FNA will not allow a warranty to be applied to it unless it is done again by the dealer. The upshot of this policy is that Ferrari dealers will have to ascertain a car’s exact service history before its trade-in value can be determined, since a car that cannot be offered with a Certified Pre-Owned warranty will likely have substantially less perceived value to prospective buyers. At this moment, the availability of these warranties is not well known, but before too long I expect that Ferrari customers will be expecting this measure of security and will pass over non-qualifying cars unless they are priced markedly less than covered ones.
I realize, of course, that this also looks like a windfall for the franchised dealer network in addition to being a security blanket for the clients, and in some measure it certainly is. As mentioned above, the impact on how Ferraris will be maintained from now on is likely to be profound. Although there are many very well trained, experienced and professional technicians working outside the dealer network, there are also a lot who do not meet that description and Ferrari does not want to guarantee their work. It must also be considered that individual technicians may change places of employment, and these places may not be willing to guarantee work a departed tech performed. Confidence and accountability are two major components with any such long-term warranty. A consumer wants to believe that work was done correctly and to know that if a repair job goes sour for some reason that the vendor will stand behind it. Consider the horror of buying a used Ferrari that had its cam belts recently changed by “Bud’s Foreign Auto Repair” several states away and having something go terribly wrong, trashing the engine. Such a disaster can easily represent $20,000 in damage. Is “Bud” going to (A) be willing to make things right, or (B) have the cash to do so, and (C) what can you do if he isn’t and doesn’t? Or, maybe the job was done last year and Bud has since retired…or been closed by the IRS. Unfortunately, this exact scenario has occurred and the car’s owner was left high and dry, since there was little he could do to bring pressure on “Bud.” And it’s not just individual consumers who get caught up in such a trap! Let’s see how someone you all know—who should be experienced and savvy in these things—has gotten his wool clipped:
CASE #1 Two months ago, I sold a nice 1992 512TR to a customer in Northern California who later experienced some starting problems—the starter wouldn’t engage. There are no Ferrari dealers within a hundred miles of his location, so I called an acquaintance to see if there was a good independent shop I could have the man take his car to. I received quite a glowing recommendation about a shop that specialized in Ferrari and Porsche repair, was close to my customer and had a very impressive website touting their expertise. Starting problems on TRs usually aren’t too difficult to solve. The starter itself is virtually never faulty; instead, a wiring connector will fail either in the fuse box or in the harness going to the engine. I made arrangements with the shop to fix the car and two days later (after getting no call with an estimate, despite asking for one) was given a bill for over $2000 for a new starter. Ferrari’s list price for a 512 starter is $672 and the labor book cites a one-hour time for the job. I was charged $930 for the starter and five hours labor at $120 per, plus some other “inspection time” to determine the problem’s cause. I knew I had been hooked, but the customer’s car was fixed and he was happy, so I paid the bill.
Two days later the car wouldn’t start again. Subsequent examination by a different shop revealed a broken connector in the wiring harness that made sporadic contact—and an original 1992 starter with a fresh coat of black paint on it. Hmmm. The California consumer fraud agency has found that the shop has no license, few assets and a proclivity to moving around. In addition to the $480 we then spent to properly repair the car at the other shop, I am sure I will never get any satisfaction from “Bud.” If this guy knowingly screwed a dealer who would know what such a repair should cost, how much mercy do you think he shows to retail customers?
CASE #2 Last year, our kids in Minneapolis called to ask if I could help some friends of theirs with a car problem. This young couple had bought a used BMW from a local BMW dealer and purchased the BMW Certified Pre-Owned warranty package on it. Over the next several months they had some recurring problems, but they were busy and the dealer was inconveniently located across the metro area, so little was done. Nearly a year later, they decided to trade the car in on a new Audi that would be better suited to Minnesota’s winters. However, the Audi dealer quickly discovered evidence of previous serious accident damage and drastically knocked down his trade offer. The couple called the BMW dealer to ask what was up and didn’t get a satisfactory answer—it was suggested that they might have damaged the car. I ran a CarFax on the car and immediately found a record of a major prang two years earlier. I called the BMW dealer with this info and he agreed to look into the matter. An hour later he called back, telling me his store had somehow omitted doing that diligence check, which is required by BMW, and agreed to repurchase the car. Now, he may or may not be a saint, but the fact that (A) he would have to answer to the BMW mother ship if I complained and (B) certainly had the immediate cash to buy back this problem (over $20,000) virtually guaranteed a consumer-beneficial outcome.
THE MORAL: Getting back to the statement above about how the enactment of a FNA warranty program on used cars can affect the maintenance of used Ferraris in the field, let’s consider this. If the program reaches the acceptance levels that other manufacturers have experienced, at some point it will become difficult to sell a late model Ferrari that cannot qualify for the coverage. No matter how competently the car’s past service work may have been done, if FNA won’t accept it, the car’s value will be diminished. Just as we have found with other brands, a certified example will sell at one price point and a non-certified sells at another. Recall that this certainly does not mean that some tasks cannot be performed by non-dealer personnel, but anything that could impact future reliability will not be accepted. Recognizing that Ferrari automobiles frequently change hands across the country, the new program will allow warranty coverage at any dealer. If Ferrari of Boston did a job that backfires, Ferrari of Seattle will be able to make the repair, dramatically reducing the owner’s inconvenience. Also, the accountability is with Ferrari North America, not an independent shop or particular technician. Owners of late model cars will now need to think about their potential position at trade-in time when deciding about their Ferrari’s service needs.
-- Bill Orth --