1. Consumer Purchasing Strategies and Wise Buying of Motor Vehicles
Chapter 6
Consumer Purchasing Strategies and Wise Buying of Motor Vehicles
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Wise Buying of Motor Vehicles and Other Purchases Chapter Learning Objectives
LO6.1 Identify strategies for effective consumer buying
LO6.2 Implement a process for making consumer purchases
LO6.3 Describe steps to take to resolve consumer problems
LO6.4 Evaluate legal alternatives available to consumers

3. Learning Objective LO6.1 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 your entire current income
Overspending leads to misuse of credit

4. Practical Purchasing Strategies
Timing purchases
Price variations with the time of the year
Store selection
Location, price, selection, services
Brand Comparison
Private-label or store brands vs. national brands
Label Information
Open dating

5. Practical Purchasing Strategies
Price comparison
Unit pricing = standard unit of measurement
Coupons & rebates
More store convenience higher prices
Ready-to-use products higher prices
Large is not always the best buy
“Sale” prices not always a savings
Online sources can save time

6. Wise Online Buying Activities

7. Practical Purchasing Strategies
Warranties
Written guarantee from manufacturer or distributor specifying the conditions under which the product can be returned, replaced, or repaired.
Express warranty (usually written)
Full Warranty or Limited Warranty
Implied warranty
Warranty of title
Warranty of merchantability

8. Warranties Used Car Warranties New Car Warranties Service Contracts
FTC required “buyers’ guide sticker”
Warranty of merchantability
New Car Warranties
Basic parts against defects
Power train coverage
Corrosion warranty
Service Contracts
Extended warranty

9. Research-Based Buying Major Purchase Decision-making Process
Phase 1: Pre-shopping Activities
Problem identification
Information gathering
Phase 2: Evaluating Alternatives
Attribute assessment and comparison
Price analysis
Comparison shopping

10. Research-Based Buying Major Purchase Decision-making Process
Phase 3: Selection and Purchase
Negotiation
Payment alternatives
Acquisition and installation
Phase 4: Post-purchase Activities
Maintenance and operation
After-sale service alternatives
Resolution of purchase concerns

11. Major Consumer Purchases: Buying Motor Vehicles
Learning Objective LO6.2 Implement a Process for Making Consumer Purchases
Major Consumer Purchases: Buying Motor Vehicles

12. Buying a Motor Vehicle Phase 1 – Pre-shopping Activities
Problem Identification
Focus purchasing activities
Information Gathering
Personal contacts
Business organizations
Media information
Independent testing organizations
Government agencies
Online sources

13. Buying a Motor Vehicle Phase 2 - Evaluating Alternatives
Purchase alternatives
Selecting vehicle options
Comparing used vehicles
Leasing a motor vehicle

14. Buying a Motor Vehicle Purchase Alternatives
Now or later?
Cash or credit?
Which brands?
Which stores?
Rent vs. Buy?

15. Price Analysis & Comparison Shopping
Prices can vary for all types of products
Assess differences in quality relative 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
Easily done with ads, catalogs, or online
Different sellers offer different prices and services
Product quality or prices vary greatly

16. Buying a Motor Vehicle Selecting Vehicle Options
Performance 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
Leather interior
Sunroof

17. Buying a Motor Vehicle 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
CPO = Certified Pre-owned

18. Checking Out a Used Car

19. Buying a Motor Vehicle 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
Able to obtain a more expensive car more often
Disadvantages
No ownership interest
Must meet requirements
May have additional costs for extra mileage,
turning the car in early, or for certain repairs

20. Buying a Motor Vehicle Financial Aspects of Leasing
Capitalized cost = price of the vehicle
Average buyer pays 92% of list
Average leaser pays 96% of list
Money factor = interest rate
Payment schedule
Monthly payment amount
number of payments
Residual value = expected value of the vehicle at the end of the lease
Return, keep, or sell the vehicle.
If the residual value < market value, return it

21. Buying a Motor Vehicle Phase 3 - Determining Purchase Price
Negotiation may lower price or add features
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
Edmund’s Used Car Prices -
Kelly Blue Book -
The more new cars sold the more used cars there are for sale, keeping the prices down

22. Buying a Motor Vehicle Price Bargaining for New Cars
Sticker price = suggested retail price
Includes base price + accessories
Invoice price = dealer’s cost
Consumer Reports:
Edmund’s New Car Prices:
Until price of the new car is settled:
Don’t mention any trade-in
Don’t mention dealer financing

23. Buying a Motor Vehicle Price Bargaining for New Cars
Price bargaining - compare dealers
Set-price dealers
Car buying services = auto broker
$50 - $200 over dealer’s cost
Sales agreement = specific details
Consumer protection for new-car buyers
Warranties
State lemon laws –

24. Buying a Motor Vehicle Price Bargaining for New Cars
Sales Techniques to Avoid
Lowballing – low price quote increases with last
minute add-ons
Highballing – high trade-in offer + high new car
price
“How much can you afford per month?”
Never leave a deposit unless ready to buy
“Your price is only $100 above our cost.”
Sales agreements with preprinted amounts

25. Buying a Motor Vehicle Comparing Financial Alternatives
Financing sources
Banks, credit unions, other financial institutions, finance companies, or dealer financing
Get preapproved for a certain amount
Low payment or low rate ≠ best
Upside down equity = car is worth less than amount still owed on the loan (negative equity)
Check the APR and any rebates

26. Buying a Motor Vehicle Phase 4: Post-purchase Activities
Maintenance and ownership costs are associated with most major purchases
Correct use yields improved performance and fewer repairs
Investigate, evaluate and negotiate a variety of servicing options
Complain if not satisfied with a purchase

27. Buying a Motor Vehicle Phase 4: Post-purchase Activities
Automobile Operation Costs
Fixed Costs
Depreciation
Interest on loan
Insurance
License, registration and taxes
Variable Costs
Gas and oil
Tires
Maintenance and repairs
Parking and tolls

28. Buying a Motor Vehicle Phase 4 - Post-purchase Activities
Motor Vehicle Maintenance
Keep good expense records
At least follow the maintenance schedule in the manual
More frequent intervals may minimize major repairs

29. Extend Vehicle Life with Proper Maintenance

30. Buying a Motor Vehicle Phase 4 - Post-purchase Activities
Vehicle Servicing Options
Car dealers
Service stations
Independent Auto Repair Shops
Mass Merchandise Retailers like Sears and Wal-Mart
Specialty shops such as oil/lube, muffler, transmission, and tire shops
Be alert for signs of fraud

31. Common Automobile Repair Frauds

32. Resolving Consumer Complaints
Learning Objective LO6.3 Describe Steps to Take to Resolve Consumer Complaints
Resolving Consumer Complaints
Step 1: Return to place of purchase
Calm, rational, persistent approach
Step 2: Contact company headquarters
“Contact Us” on firm’s website
Use or letter

33. Resolving Consumer Complaints
Step 3: Obtain consumer agency assistance
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
Step 4: Take legal action

34. Learning Objective LO6.4 Evaluate Legal Alternatives Available to Consumers
Legal Options for Consumers
Small claims court
Class action suits
Using a lawyer
Other legal alternatives
Legal aid society
Prepaid legal services

35. Personal Consumer Protection
Do business only with reputable companies
Avoid signing contracts you do not understand
If it seems too good to be true, it probably is
Compare the cost of using credit vs. cash
Avoid rushing to a good deal (impulse buying)

36. Chapter Summary Learning Objective LO6.1
Common strategies for effective purchasing include:
(1) Timing purchases
(2) Comparing stores and brands
(3) Using label information
(4) Computing unit prices
(5) Evaluating warranties

37. Chapter Summary Learning Objective LO6.2
A research-based approach to consumer buying involves:
(1) Pre-shopping activities, such as problem identification and information gathering
(2) Evaluating alternatives
(3) Determining the purchase price
(4) Post-purchase activities, such
as proper operation and maintenance.

38. Chapter Summary Learning Objective LO6.3
Most consumer problems can be resolved by following these steps:
(1) Return to the place of purchase;
(2) Contact the company’s main office;
(3) Obtain assistance from a consumer agency
(4) Take legal action

39. Chapter Summary Learning Objective LO6.4
If a consumer problem cannot be resolved through communication with the company involved or with help from a consumer protection agency, the following legal means are available:
Small claims court
Class-action suits
The services of a lawyer
Legal aid societies
Prepaid legal services are legal