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McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Wise Buying of Motor Vehicles and Other Purchases6

6-3Wise 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

6-4Objective 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. 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.

Evaluate warranties. – Full or limited express warranties, usually written.– Implied warranties of merchantability.

Service contracts -also called extended “warranties.”

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6-7Objective 2: Implement a process for making consumer purchases

Phase 1-Preshopping Activities Problem identification. Information gathering.

– Personal Contacts– Business Organizations– Media Information– Independent Testing Organizations– Government Agencies– Online Sources

6-8Objective 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.

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6-9 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.

6-10 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 Online used-car businesses

6-11 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.

6-12 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.

6-13 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 information sources

– Edmund’s Used Car Prices or edmunds.com– NADA Official Used Car Guide.– Kelly Blue Book kbb.com

The more new cars sold the more used cars there are for sale, keeping the prices down.

6-14 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 www.consumerreports.org – Edmund’s New Car Prices

www.Edmund's.com Buy in winter, early spring or end-of-month.

6-15 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– www.autobytel.com or autoadvisor.com.

The sales agreement - specific details. Consumer protection for new-car buyers.

– Warranties and lemon laws.

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6-16 Financing an Automobile Purchase

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.

6-17 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.

6-18 Costs of Operating a Car

Fixed Costs.– Depreciation is the largest fixed cost.– Insurance.– License, registration and taxes.

Variable Costs.– Gas and oil changes.– Tires, other wear and tear items.– Maintenance and repairs.

6-19 Costs of Operating a Car

Keep good expense records. Follow the maintenance schedule in the manual. Vehicle servicing options.

– Car dealers.– Automobile repair shops.– Service stations.– Department and discount stores.– Specialty shops such as oil/lube, muffler, transmission,

and tire shops– Be alert for signs of fraud.

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