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I guess people add undeserved badges to increase the perceived status of the car. But no car has lower status than a car where people can see that it is not what it tries to look like. The audience will frown more at a 328i with M3 badges than a 316i with honest badges.
Quite a few people see ///M-badges on the back on non-M-car the same way. Even though they are probably wrong, they will dislike your car because of it.
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