Damage is unlocked at lvl 20 iirc, yes the standard cars look ugly when your looking close up but when driving I don't really notice the difference
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The only thing that really annoys me is that you cant change the rims on the standard cars (I know that we couldn't anyway) apart from that I cant really say anything else as I haven't played it much, but as far as sounds go my S2000 sounds incredible outside, inside it just sounds like a normal car :P and the graphics imo are the same as prologue maybe abit better