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McGraw-Hill/Irwin Focus on Personal Finance, 2e Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Consumer Purchasing Strategies and Wise Buying of Motor Vehicles 6

6-3 Wise Buying of Motor Vehicles and Other Purchases 1.Identify strategies for effective consumer buying 2.Implement a process for making consumer purchases 3.Describe steps to take to resolve consumer problems 4.Evaluate legal alternatives available to consumers Chapter Objectives

6-4 Objective 1: Identify strategies for effective consumer buying  Daily buying decisions involve trade-offs  Wide variety of economic, social and personal factors affect daily buying habits  Long term stability is achieved by not spending the entire current income  Overspending leads to misuse of credit

6-5 Practical Purchasing Strategies  Timing purchases. –Be aware if the price varies with the time of the year.  Store selection. –The retailer you use depends on a variety of factors. –Once choice is a cooperative, which is a non-profit organization, and members save money.  Brand Comparison shopping of store and national brands, or impulse buying (unplanned purchasing).  Look for information on the label and open dating

6-6 Practical Purchasing Strategies  Price comparison. –Unit pricing provides a standard of measurement. –Coupons (online: coolsavings.com; centsoff.com; couponsurfer.com) and rebates (partial refund). –More convenience, and ready-to-use products, may mean higher prices. Large is not always the best buy, and “Sale” prices vary among stores.  Warranties. –Express warranties (usually written) Full Warranty or Limited Warranty –Implied warranties Warranty of title, Warranty of merchantability. –USED CAR WARRANTIES –NEW CAR WARRANTIES  Service contracts -also called extended “warranties.” (continued)

6-7 Research Based Buying Major purchases should be based on a 4 step decision making process  Phase 1: Preshopping Activities  Phase 2: Evaluating Alternatives  Phase 3: Selection and Purchase  Phase 4: Postpurchase Activities

6-8 Objective 2: Implement a process for making consumer purchases BUYING A MOTOR VEHICLE Phase 1-Preshopping Activities  PROBLEM IDENTIFICATION  INFORMATION GATHERING –Personal Contacts –Business Organizations –Media Information –Independent Testing Organizations –Government Agencies –Online Sources

6-9 Objective 2: Implement a process for making consumer purchases  Phase 2: Evaluation of Alternatives  PRICE ANALYSIS –Prices can vary for all types of products. –Assess differences in quality in relation to price. –Price and quality are not always closely related.  COMPARISON SHOPPING CAN BE BENEFICIAL WHEN….. –Buying expensive or complex items. –Buying items that you purchase often. –It can be done easily with advertisements, catalogs, or online. –Different sellers offer different prices and services. –Product quality or prices vary greatly. (continued)

6-10 Phase 2: Evaluation of Alternatives contd…  SELECTING VEHICLE OPTIONS –Mechanical devices. –Engine size, transmission, power steering, cruise control, and antilock brakes.  COMFORT AND CONVENIENCE OPTIONS –Power seats, air conditioning. –Stereo systems, power locks.  AESTHETIC FEATURES –Metallic paint. –Special Trim.

6-11 Phase 2: Evaluation of Alternatives contd  COMPARING USED VEHICLES Common sources of used cars include –New-car dealers –Used-car dealers –Private sales –Auctions and dealers sell previously owned cars –Used-car superstores such as CarMax

6-12 Phase 2: Evaluation of Alternatives contd LEASING A MOTOR VEHICLE  Advantages. –Small cash outflow. –Lower monthly payments than buying. –Lease provides detailed records - helps if you use your car for business purposes.  Disadvantages. –No ownership interest. –Must meet requirements. –May have additional costs for extra mileage, turning the car in early, or for certain repairs.

6-13 Phase 2: Evaluation of Alternatives contd…. Financial Aspects of Leasing  Capitalized cost - the price of the vehicle. Average buyer pays 92% of list, average person who leases pays 96% of list.  Money factor - interest rate.  Monthly payment amount and number of payments.  The residual value - expected value of the vehicle at the end of the lease. You may decide to return, keep, or sell the vehicle. If the residual value is less than market value, return it.

6-14 Phase 3: Determining Purchase Price  Negotiation may be used in some buying situations. –Have all the necessary information. –Deal with a person who has the authority to give you a lower price or additional features.  Used-Car Price Negotiation  Price Bargaining for New Cars – Edmund’s Used Car Prices or edmunds.comedmunds.com –Kelly Blue Book kbb.comkbb.com  The more new cars sold the more used cars there are for sale, keeping the prices down.

6-15 Price Bargaining for New Cars  Sticker price - suggested retail price. It includes the base price of the vehicle plus accessories.  Invoice price - dealers cost.  Know the dealer’s cost by consulting... – Consumer Reports –Edmund’s New Car Prices  Buy in winter, early spring or end-of-month.

6-16 Price Bargaining for New Cars  Price bargaining - compare dealers.  Set-price dealers.  Car buying services. –Also called an auto broker. $50-$200 over dealer’s cost.  Online car buying – or autoadvisor.com.  The sales agreement - specific details.  Consumer protection for new-car buyers. –Warranties and lemon laws. (continued)

6-17 Comparing Financial Alternatives  Financing sources. –Banks, credit unions, other financial institutions, finance companies, or dealer financing. –Get preapproved for a certain amount.  Consider the length of the loan. –Upside down equity means that your car is worth less that what you still owe on your car loan.  Check the APR and any rebates.

6-18 Phase 4: Postpurchase Activities  Three days to cancel some contracts of =>$25.  Maintenance and ownership costs may be associated with some purchases.  Use the item correctly to have improved performance and fewer repairs.  Investigate, evaluate and negotiate a variety of servicing options.  Complain if you are not satisfied with a purchase.  Consider what you have learned from the purchase.

6-19 Phase 4: Postpurchase Activities cont’d Automobile Operating Costs  Fixed Costs. –Depreciation is the largest fixed cost. –Interest on loan. –Insurance. –License, registration and taxes.  Variable Costs. –Gas and oil. –Tires. –Maintenance and repairs. –Parking and tolls.

6-20 Phase 4: Postpurchase Activities cont’d Automobile Operating Costs  Keep good expense records.  Follow the maintenance schedule in the manual.  Vehicle servicing options. –Car dealers. –Automobile repair shops. –Service stations. –Independent Auto Repair Shops –Mass Merchandise Retailers like Sears and Walmart. –Specialty shops such as oil/lube, muffler, transmission, and tire shops –Be alert for signs of fraud. (continued)

6-21 Objective 3: Describe steps to take to resolve consumer complaints RESOLVING CONSUMER COMPLAINTS  Return to place of purchase.  Contact the company’s main office ( to link to the online Consumer’s Resource Handbook). Another option is via a firm’s website “contact us.”  Obtain assistance from a consumer agency. –BBB provides pre-purchase information. –File a complaint on line at – Mediation - third party negotiates (nonbinding) – Arbitration - decision is binding. –State consumer protection office or agency.  Take legal action

6-22 Objective 4: Evaluate legal alternatives available to consumers  Legal options for the Consumers –Small claims court. –Class action suits. –Using a lawyer. –Other legal alternatives. Legal aid society. Prepaid legal services.