Market Guide Madness Part I

Pricing out PF Coupes or Cabs lately? How about Lussos? 4-Cams? Checked out all of the market guides only to find that you're no more well informed than when you started? You're not alone. Lately, more and more people seem to be confused by the odd disparity of Ferrari values presented in the various market guides, something that's not surprising when you consider the following:

250 PF Cabriolet series II
Cavallino (Guida Feb/Mar 05): $225,000 - $300,000
Sports Car Market (Price Guide 2005): $175,000 - $300,000
Ferrari Market Letter (Asking Price Index Feb 12, 05): $143,696

250 PF Coupe
Cavallino (Guida Feb/Mar 05): $65,000 - $125,000
Sports Car Market (Price Guide 2005): $75,000 - $125,000
Ferrari Market Letter (Asking Price Index Feb 12, 05): $57,447

250 GT/L
Cavallino (Guida Feb/Mar 05): $240,000 - $350,000
Sports Car Market (Price Guide 2005): $250,000 - $350,000
Ferrari Market Letter (Asking Price Index Feb 12, 05): $182,750

275 GTB/4
Cavallino (Guida Feb/Mar 05): $450,000 - $495,000
Sports Car Market (Price Guide 2005): $425,000 - $500,000
Ferrari Market Letter (Asking Price Index Feb 12, 05): $348,000

Now, any hominid can see that something's wrong with this picture. Is the Ferrari Market Letter trapped somewhere between the Triassic and Jurassic periods or what? Well, the answer is yes and no. Before I comment any further, let's let the Ferrari Market Letter's own self-proclaimed dinosaur, Gerald Roush, explain how he comes to the figures published in his Asking Price Index:

FERRARI MARKET LETTER ASKING PRICE INDEX
Originally published in Vol. 27 No. 22

There seems to be quite a number of misconceptions about the Ferrari Market Letter Asking Price Index published in each issue of the Ferrari Market Letter. People try to make more out of it than it is, try to make it out to be something it was never intended to be, criticize it for not being what they want it to be.

At the risk of sounding like an old curmudgeon, I believe part of the problem stems from the influx of newbies into the Ferrari world over the past decade or so. They don’t recall or can’t remember what the Ferrari world was like when we first started the regular Asking Price Index (A.P.I.)—probably because they weren’t active in the Ferrari market then. At that time, as the 80s ended and the 90s began, the Ferrari market was in a price turmoil. Prices had shot up drastically during the late 80s, in some instances doubling every year, then went into a steep decline in the early 90s.

In the earlier days of the Ferrari Market Letter, the late 70s and into the 80s, I only published a price analysis every six months—in January and July. The stability of the market in those years required nothing more. But as the market destabilized there seemed to be a need for a more frequent and up-to-date analysis. Hence the every issue format that has prevailed for the past 12 or so years.

In both its earlier incarnations and its present form any price analysis published in the FML has been calculated using asking prices. That’s why it’s called the Asking Price Index. This policy is a regular source of criticism. Why not, I am often asked, use actual selling prices? But after publishing the FML for 27 years I think I have some experience in the matter and I have yet to find any source for reliable, accurate and verifiable actual selling prices in the quantities required to make any analysis statistically relevant.

A number of solutions to this problem have been suggested. Why not use auction figures? But do dealer wholesale auctions such as Manheim truly reflect the retail market? It is the retail market where most subscribers operate. The public auctions such as RM, Bonhams, Christie’s and Barrett-Jackson tend toward the more exotic (and high dollar) Ferrari models and while a number of the more mundane Ferraris do go through these auctions the quantity is not sufficient.

What about public records? After all, when these cars are sold taxes have to be collected so why not use local tax records? I have privately invited individuals interested in reforming our price index to approach their local government bureaucracies and ask them to extract such information on Ferrari sales. To date the influx of such "readily accessible, public record" information has been nil.

As for just asking the parties involved the amount of money that changed hands I have found that to be somewhat unreliable. Buyers tend to brag about how cheaply they purchased the car, and sellers tend to brag about what a killing they made on the sale, and the twain often don’t match!

Using asking prices results in numbers that are almost certainly higher than actual selling prices, because it seems that there is an unwritten rule that nobody pays asking price. But this overlooks the fact that the FML A.P.I. was never intended as a value guide. There are useful value guides out there, such as the Cars of Particular Interest Collectible Vehicle Value Guide and the N.A.D.A. Classic, Collectible, and Special Interest Car Appraisal Guide & Directory. Both of these have breakdowns by year and give low, average and high value ranges. This is much more useful than the FML’s one-price-fits-all number.

The FML A.P.I. was intended as a barometer showing where the market was headed, which is why figures from the past are also shown. That was important when it was first created because prices were changing rapidly. Maybe it’s a fallacy, but I believe as asking prices go so go selling prices. If the A.P.I. figure for your particular favorite model has gone up 20 percent in the past two years then there is a good chance that selling prices have likewise gone up 20 percent, and of course the opposite is true.

Keep in mind that A.P.I. figures are not a simple arithmetic average of the cars being advertised in that issue of the FML, a misconception which leads to regular criticism because a subscriber can’t duplicate the results. Prices are gathered from other sources, there is a time factor involved, and unrepresentative examples are not considered. Several years ago an astute subscriber accurately described it as "a lagging average over many issues that allows you to show trends, minimize issue-to-issue noise, and give an indication of the market even when no vehicles are listed." But it does come close to being an average or median. For example look at the 328 GTS 1986-1988 prices in this issue. Five of them are under the A.P.I. figure and six are higher.

But in addition to telling you where the market has been and, perhaps, where it is going, the A.P.I. can help you determine a value. If the example you are evaluating has an asking price higher than the A.P.I. figure perhaps there is a valid reason. Maybe it’s a late version in exceptional condition with low mileage and excellent records, making it more valuable. If it has an asking price lower than the A.P.I. find out why it’s so cheap. Maybe it has a mechanical problem or a checkered or undocumented history.

Just don’t expect the FML A.P.I. to tell you what an individual example is worth. Use it as just one tool to help you make that judgment for yourself.

So, it would make sense that, being based on advertised asking prices and not actual selling prices, the figures listed in FML's Asking Price Index would refect numbers that are higher than those based on actual sales, right? Again:

Using asking prices results in numbers that are almost certainly higher than actual selling prices, because it seems that there is an unwritten rule that nobody pays asking price.

So, why then are FML's numbers not only lower, but dramatically lower than those published in both Cavallino and Sports Car Market in the examples I provided? After all, if no one pays asking price, then certainly no one is paying over asking price.

The answer, I suppose, lies somewhere within that mystical formula that Gerald uses to calculate his figures. What I see happening is that models with asking prices that have remained flat or have appreciated very slowly, have listings in the API that make sense while cars that have been actively on the rise do not. Simply put, the FML's formula cannot keep up with market trends. If one were to review every single 275 GTB/4 that's been advertised for sale publicly over the past two years, I'm willing to bet that not a single one has had an asking price of under $350,000. The same can be said for Lussos listed for under $185,000. Where are these advertised cars?

It's also possible that Gerald's using only figures from cars offered for sale in North America, which might also contribute to the discrepency. In the case of the samples I've chosen above, the PF Coupe, Cab II, Lusso and 4-Cam, few have been offered on this side of the pond over the past year or so and the weak dollar makes asking prices in Europe much higher by conversion than they would have been only a couple of years back.

So, what to make of the FML's API? Personally, I think it does a decent job of reflecting asking prices for every model after the 275 GTB/4 (365 GT 2+2 and on), where the market has been more or less flat, but that the earlier cars are appreciating at a rate that the API's formula just can't keep up with.