6-1. McGraw-Hill/Irwin Focus on Personal Finance, 2e Copyright © 2008 by The McGraw-Hill Companies,...

6-6-11

McGraw-Hill/IrwinFocus on Personal Finance, 2e

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Consumer Purchasing Strategies and Wise Buying of Motor Vehicles6

6-6-33 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

6-6-44Objective 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

6-6-55 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

6-6-66 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)

6-6-77 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

6-6-88Objective 2: Implement a process for making consumer purchases

BUYING A MOTOR VEHICLEPhase 1-Preshopping Activities PROBLEM IDENTIFICATION INFORMATION GATHERING

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

6-6-99Objective 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)

6-6-1010 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.

6-6-1111 Phase 2: Evaluation of Alternatives contd

COMPARING USED VEHICLESCommon 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

6-6-1212 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.

6-6-1313 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.

6-6-1414 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.com

– Kelly Blue Book kbb.com

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

6-6-1515 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

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

6-6-1616 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.

(continued)

6-6-1717 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.

6-6-1818 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.

6-6-1919 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.

6-6-2020 Phase 4: Postpurchase Activities cont’dAutomobile 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)

6-6-2121 Objective 3: Describe steps to take to resolve consumer complaintsRESOLVING CONSUMER COMPLAINTS Return to place of purchase. Contact the company’s main office (

www.pueblo.gsa.gov 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 www.bbb.org.– Mediation - third party negotiates (nonbinding)– Arbitration - decision is binding.– State consumer protection office or agency.

Take legal action

6-6-2222Objective 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.