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Lesson One: Buying a New or Used Car© 2005 Consumer Jungle
Budgeting for a Car PurchaseKnow Your Budget What are your fixed expenses? How much can you afford for a vehicle? Recommend no more than 10% of monthly income. Down Payment or Trade-In? Double-check your estimate by prequalifying for a loan at a: Bank Credit Union Car is interchangeable for vehicle throughout the lecture. Budget: A plan for spending and saving money during a particular period. Down payment: Amount of your own money paid upfront for a vehicle. Trade-in value: The value of the vehicle you are trading in for a newer or different vehicle. © 2005 Consumer Jungle
Vehicle Expenses Cost of the Vehicle Sales Tax Routine MaintenanceInsurance License & Registration Unexpected Repairs Gas Depreciation All of these add up quickly! © 2005 Consumer Jungle
New vs. Used How much is a new car worth 5 years from now?Most Cars: % of the original value Honda Accord or Toyota Camry: 60% of original value Source: Kelly Blue Book The first decision is to buy a new car or a used car. © 2005 Consumer Jungle
Depreciation: The steady decline in the resale value of any vehicle that you buy.This graph illustrates how quickly new cars depreciate over 3 years. © 2005 Consumer Jungle
A Big and Important PurchaseNew Vehicle is the 2nd most expensive purchase in life. 1st is a home A car is a long-term commitment Average price: New vehicle: $25,206. Used vehicle: $15,568 Know the Basics VIN, Manufacturer, Make, Model, Year, and Type A Used vehicle may also be the 2nd most expensive purchase in life. $10,000 difference between the average new vehicle and used vehicle price. The average price consumers paid for a new vehicle in June 2004 was $25,206, with new cars selling at an average of $22,537 and new trucks at $27,329. The average price of a used vehicle in June 2004 was $15,568. Used cars sold for an average price of $13,973. Used trucks sold for an average of $17,454—up 4.2 percent. Source: JD Powers & Associates A car is a long-term commitment and which car a student buys is n important decision. The student should have a plan for how he or she is going to use the car now and in the future. Does he/she need a truck, a fuel-efficient commuter car, or a car with towing capacity? © 2005 Consumer Jungle
Vehicle Identification NumberVIN is a 17-character number Where is it? Left side of the dash Inside of driver’s doorjamb Vehicle’s title card Information specific to the vehicle Vehicle Identification Number (VIN): A 17-digit character number used to identify specific information about each car. © 2005 Consumer Jungle
Manufacturer & Make Manufacturer:: The company that builds the car. The manufacturer builds makes of cars. Ford manufacturers Mercury and Lincoln cars. General Motors manufacturers Pontiac, Buick, Cadillac, Oldsmobile, Hummer, Saturn, and Chevrolet cars. Honda manufactures Acura cars. © 2005 Consumer Jungle
Model Specific type of make The model year Taurus (Ford)Accord (Honda) Altima (Nissan) Corrola (Toyota) The model year Not necessarily the year it was built The date of manufacture is listed inside the driver’s door, on the vehicle certification label. This is the actual month and year that the vehicle rolled off the assembly line. © 2005 Consumer Jungle
Type Pickups Sport Utility Vehicles Sport Utility Trucks Compact CarsMid-size Cars Full-size Cars Mini-vans Full-size Vans Sports Cars © 2005 Consumer Jungle
Car Buying: 4-Step ProcessResearch Check out the cars Set a target price Shop for financing To ensure that you get the right vehicle at the best price, you need to be an informed buyer. That means investing time in research and preparation. Source: Consumer Reports © 2005 Consumer Jungle
Step 1: Research © 2005 Consumer Jungle
Sources to Compare Models Step 1: ResearchThe person who does their research always gets a good deal. Online Sources: Auto Manufacturers Pricing sites Consumer Reports Fuel Economy sites Safety sites To accurately compare vehicles and determine the best one for your needs, you need to get as much information as you can about any models you’re considering. Fortunately, the Internet makes that easy to do. But, just as cars can vary greatly in quality, so can sources of information. The key is knowing what to look for and the best sources from which to get the information. Research should be your #1 Priority. © 2005 Consumer Jungle
Auto Manufacturer Websites Step 1: ResearchGood for: Basic Information Models & Trim Levels Retail Pricing Warranties Dealership Locations Search of Certified Used Cars Main purpose of auto sites is to promote their own vehicles. Manufacturer Name Website Daimler Chrysler Ford Motor Company General Motors Honda Motor Company Hyundai Motor Company Isuzu Kia Motors America Mitsubishi Motors Toyota Motor Corporation Volkswagen The main purpose of auto sites is to promote their own vehicles, so the model information is the same as advertising. © 2005 Consumer Jungle
Pricing Websites Step 1: ResearchGood for: New-Car Retail Prices Used-Car Retail Prices Dealer Invoices Incentives Other Pricing Variables Name Website AutoTrader Edmunds IntelliChoice Kelley Blue Book National Automobile Dealership Association VMR (used cars only) © 2005 Consumer Jungle
Consumer Reports Step 1: ResearchVehicle Ratings Model Reviews Reliability Ratings Fuel Economy Safety Ratings Subscribe online 1 month ($5) or 1 year ($26) Last 4 years of data Consumer Report’s Vehicle Ratings help you narrow you list of vehicles by giving you a quick look at how tested vehicles compare with their competitors in several areas. The Ratings charts show you which vehicles meet CRs stringent requirements to be recommended. Consumer Report’s Model Reviews give you an in-depth perspective of a vehicle’s performance, comfort and convenience, and overall driving character, as well as insight into deficiencies that might not be apparent on a test drive. Consumer Reports conducts the most comprehensive auto-test program of any U.S. publication or website. It differs from other reviewers in several significant ways: They don’t accept advertising They buy all of their own test vehicles They conduct more than 50 individual tests and evaluations on each vehicle over several months and thousands of miles. © 2005 Consumer Jungle
New & Used Car Buying Guides Step 1: ResearchThis is what the guides that Consumer Reports puts out looks like. © 2005 Consumer Jungle
www.fueleconomy.gov Step 1: ResearchLists MPG for: City, Highway, and combined Compare MPG for 4 models side by side Customize an annual fuel estimate based on the cost of gas in your area, and the percentage of highway to city driving. © 2005 Consumer Jungle
Safety and Crash Tests Step 1: ResearchInsurance Institute for Highway Safety Tests and rates off-set frontal crashes: Good Acceptable Marginal Poor National Highway Traffic Safety Administration Tests and rates full-frontal & side impact crashes on a 5-star scale : 5-star rating is the safest(*****) How well a vehicle protects its occupants from injury depends primarily on its structural design and safety systems. Safety belts are the single most important element, with air-bag systems providing additional protection. In addition, all vehicles have “crumple zones” in the front that are designed to collapse in a way that helps absorb the crash energy and minimize any deformation of the cabin. The better the vehicle manages this energy, the less chance that occupants will suffer serious injury. The only independent crash-test results are those from the National Highway Traffic Safety Administration (NHTSA) and the Insurance Institute for Highway Safety (IIHS). NHTSA conducts two types of crash tests: full frontal and side impact. NHTSA tests are a good indication of how well a vehicle’s safety belts and air bags protect the occupants in specific types of impacts. Each is scored on a five-star scale, with fewer stars indicating a greater likelihood of injury or death. Separate ratings are given in the frontal test for the driver and front passenger, and in the side impact for the driver and left rear passenger. The IIHS tests vehicles in an offset-frontal crash, the more common type of head-on crash. In an offset-crash test, only the portion of the vehicle in front of the driver impacts a barrier. This test challenges the car’s structural integrity and its ability to protect the area around the driver without collapsing. Vehicles are rated as Good, Acceptable, Marginal, or Poor. Source: Consumer Reports © 2005 Consumer Jungle
Cool Cars = Costly RepairsAverage Repair Bill is $3,912 Repairs Costs have increased 60% since 1992 2005 BMW 5 Series Adaptive headlight $2,035 Parking Sensor $372 Adaptive Cruise Sensor $2,222 When considering the cost of a car, you also need to think about how much it is going to cost to replace items in the car. Expensive cars have expensive parts. The prices listed below are for parts only and does not include the cost of labor. Average Repair Bill $3,912 Repairs Costs have increased 60% since 1992 Source: Highway Loss Data Institute Examples include: 2004 Cadillac Escalade Ultrasonic Rear Parking Assistant $924 Xenon Headlight $765 Heated Side Mirror $997 2005 BMW 5 Series Adaptive headlight $2,035 Parking Sensor $372 Adaptive Cruise Sensor $2,222 Adaptive headlights change the amount of lighting on the road depending on driving conditions and position on the road using xenon lights. Adaptive Cruise Sensor keeps a set amount of distance between your car and the car ahead of you when you have cruise control on. Source: Weston, Liz Pulliam, “Cool Cars, Costly Repairs: High-tech cars means high priced repairs” CNBC, June 6, 2006. © 2005 Consumer Jungle
Step 2: Check out the Cars© 2005 Consumer Jungle
Where to Purchase a Car Step 2: Check out the carsDealerships Take your Time: only look at 3 -4 cars a day. If you are tired at the end of the day, and just want to get it over with, a salesman will be able to sell you anything. Other Sources: Private-Party Sellers Internet The following information will cover looking for a car at a dealership. Always make sure you are doing business with someone that you would do business with for a long time. Check with friends and family and see what they think of that business. The Better Business Bureau (BBB) is a great source for checking the history of local business. Repair facilities, dealerships, banks with a bad reputation will have a history at the BBB. © 2005 Consumer Jungle
Test Drive Step 2: Check out the carsNormal Travel Routes Listen for noises Drive variety of roads: Windy Bumpy Steep Drive for at least 10 minutes and 10 miles Try stopping hard to make sure the brakes are in good condition. Make sure no one is behind you. © 2005 Consumer Jungle
Types of Used Cars Step 2: Check out the carsProgram Factory Cars Fleet-leased (Rental) Cars that may have 10,000 miles on it but they are still under warranty. Certified Used Car Certified cars come with warranties Must past inspection Certified Used Car: A car that has passed through the dealer's mechanical and physical inspection. © 2005 Consumer Jungle
Check out a Used Car Step 2: Check out the carsEven if the car is a dealer-certified used car: Get a Carfax report Take the car to an independent mechanic for an unbiased, second opinion. Cost: $50 - $70 ASC certified mechanics are best. ASE Certified Mechanic: Automotive Service Excellence (ASE) is an impartial, third-party endorsement of a mechanic’s knowledge and experience. © 2005 Consumer Jungle
CarFax Step 2: Check out the cars Need VIN $24.99 unlimited vehicle reports for 30 days($19.99 single report) Free Lemon Check will give you any buyback or lemon records Information Provided: Salvage history? Odometer fraud? Flood damage? Multiple owners? Major accident damage? Fire damage? Nearly all State Lemon Law Statutes are similar to the Federal Magnuson-Moss Warranty Act which makes breach of warranty a violation of federal law. All States have enacted their own Warranty Acts and many States have enacted specific statutes that pertain to automobile warranties. Lemon: A vehicle that continues to have a defect that substantially impairs its use, value, or safety. Generally, if the car has been repaired 4 or more times for the same defect within the warranty period and the defect has not been fixed, the car qualifies as a lemon. The lemon laws are different in each state © 2005 Consumer Jungle
Used Cars: Things to Check on the Exterior Step 2: Check out the carsBody Condition Prior work will reveal paint and bolts Glass Paint Rust or Damage Tires © 2005 Consumer Jungle
Used Cars: Things to Check While the Car is on the Floor Step 2: Check out the carsUnder Hood Oil Leaks Water Pump Play Battery & Connections Belts, Hoses & Clamps Radiator & Coolant Carburetor Air Filter Engine Oil Power Steering, Pump Oil Safety Items Lights Horn Windshield Wiper Windshield Washer © 2005 Consumer Jungle
Used Cars: Things to Check While the Car is on the Lift Step 2: Check out the carsBrake Fluid Leaks Exhaust System Engine & Transmission Leaks Rear Axle Leak Frame or Structure Damage Suspension Tie Rod Ends Idler Arm Shock Absorbers Springs Tires Brakes (Front) C.V. Boot © 2005 Consumer Jungle
Step 3: Set a target price© 2005 Consumer Jungle
Pricing Terms Step 1: ResearchInvoice Price Base Price Monroney Sticker Price (MSRP) Dealer List Price Beware of Bait & Switch Advertise one low-priced car and then switch you to another. Beware of 30-day Return Negotiations often have a vocabulary of their own. Here are some terms you may hear when you’re researching prices and negotiating a price with the dealer. Invoice Price: The manufacturer’s initial charge to the dealer. This usually is higher than the dealer’s final cost because dealers receive rebates, allowances, discounts, and incentive awards. Base Price: The cost of the car without options, but includes standard equipment and factory warranty. Monroney Sticker Price (MSRP): Shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price, the manufacturer’s transportation charge, and the fuel economy (mileage). Affixed to the car window, this label is required by federal law, and may be removed only by the purchaser. Dealer List Price: A supplemental sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP) and undercoating. Bait and Switch: The practice of advertising a car at an unrealistically low price, then switching a customer to a different vehicle at a higher price. __________________________________________________________________________________________________________________ 30-day Return: Loophole-alooza. Some manufacturers offer a 30-day, money-back guarantee. This is a prime example of a promise that falls apart on closer inspection. Buyers are allowed to return a new car for any reason within a month. But Detroit News columnist Brian J. O'Connor dubbed this "The World's Most Expensive Test Drive" because of all the fees, taxes and other expenses a consumer would pay. Dealers can charge a 5% restocking fee, add a 50-cent-per-mile penalty and hang on to any sales tax paid, among other costs. The buyer gets only what's left. O'Connor figured that someone buying a $34,000 vehicle could be out $4,600, or 13.5% of the purchase price, if she brought the car back. That's a daily cost of $153 if she drove it until the very end, much more if she returned it sooner. Source: O’Conner, Brian J., “The World's Most Expensive Test Drive," Detroit News, October 5, 2006. "In the end," O'Connor concludes, "dealers and others say they suspect the 30-Day Return Program isn't designed to be used at all, but is more of a public-relations tool to strengthen Chrysler's quality image and soothe any misgivings of any nervous buyers." © 2005 Consumer Jungle
Making an Offer Armed with research, you can make a firm and reasonable offer to the dealer. A reasonable offer is 2% - 8% above the dealer’s cost. Get the price in writing. The salesman will sale you the car at your reasonable offer with hopes that they’ll make more profit with the financing and extras. Calculating a Reasonable Offer Dealer Invoice Price - Factory-to-Dealer Holdbacks - Factory-to-Dealer Incentives = Dealer Cost Dealer Cost x – 1.08 = Your Reasonable Offer Factory-to-Dealer Holdbacks: A percentage of the invoice on a day sales turn. It is usually 2-3% of the dealer invoice price that is refunded to the dealer after selling the car. Factory-to-Dealer Incentives: A Bonus or reimbursement offered on a regional or national level that is refunded to the dealer after selling the car. The best way to negotiate a vehicle's price is to have a starting price, say the CR Bottom Line Price plus 2-8% percent. The dealer has to make some profit on the transaction. The dealer pays for flooring which is the cost to finance the car. To provide a better starting point for negotiations, Consumer Reports offers the CR Bottom Line Price, which factors in any rebates, holdbacks, or dealer incentives to give you a more realistic idea of how much profit the dealer is making on the vehicle. To tailor the CR Bottom Line Price to a specific vehicle, figure in the dealer-invoice price for any options or packages in which you're interested (available as part of Consumer Reports' New Car Price Report) and add those to the Bottom Line Price. You have to purchase the CR New Car Price Reports. 3-month subscription for unlimited reports = $39.99 as of December 2005. Once you have the price set, get it in writing. Remember. If it is not in writing, it is not true. © 2005 Consumer Jungle
Separate TransactionsDon’t combine transactions: Trade-in New Car Financing You will get a better deal if you negotiate each one individually. Buying a car is not a logical decision, it is an emotional decision. The person who jumps up and down and buys the car that looks nice is an easy sale for the salesman. If you are prepared, you will get the best deal. Remember that you are not given a 3-day right of rescindment to back out of a deal. May also be referred to as a “cooling off period”. When you sign the paperwork and leave with the vehicle, you are the owner. Used vehicles are sold AS IS with no warranty unless written otherwise. It is very hard to try to get a repair afterwards if it was not in writing. It is the buyers responsibility to make sure everything is answered before they purchase the vehicle. Whether you are selling your used car on your own or trading it in, you will want to establish the value through Kelly Blue Book, NADA, Edmunds, or AutoTrader. © 2005 Consumer Jungle
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