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

6-2 Wise Buying of Motor Vehicles and Other Purchases Chapter Learning Objectives LO6.1Identify strategies for effective consumer buying LO6.2Implement a process for making consumer purchases LO6.3Describe steps to take to resolve consumer problems LO6.4Evaluate legal alternatives available to consumers

6-3 Learning Objective LO6.1 Identify Strategies for Effective Consumer Buying By now you know: 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

6-4 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

6-5 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

6-6 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 – right to sell –Warranty of merchantability – item performs as intended

6-7 Warranties Used Car Warranties –FTC required “buyers’ guide sticker” Warranty or “as is” –Warranty of merchantability New Car Warranties –Basic parts against defects –Power train coverage –Corrosion warranty Service Contracts –Extended warranty

6-8 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

6-9 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 Research-Based Buying Major Purchase Decision-making Process

6-10 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

6-11 Purchase alternatives Selecting vehicle options Comparing used vehicles Leasing a motor vehicle Buying a Motor Vehicle Phase 2 - Evaluating Alternatives

6-12 Now or later? Cash or credit? Which brands? Which stores? Rent vs. Buy? Buying a Motor Vehicle Purchase Alternatives

6-13 Price Analysis –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 Price Analysis & Comparison Shopping

6-14 Performance Options –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 Buying a Motor Vehicle Selecting Vehicle Options

6-15 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 – Buying a Motor Vehicle Comparing Used Vehicles

6-16 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 Buying a Motor Vehicle Leasing a Motor Vehicle

6-17 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 Buying a Motor Vehicle Financial Aspects of Leasing

6-18 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

6-19 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

6-20 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 –

6-21 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 Buying a Motor Vehicle Price Bargaining for New Cars

6-22 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

6-23 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

6-24 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

6-25 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

6-26 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

6-27 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

6-28 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

6-29 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

6-30 Personal Consumer Protection 1.Do business only with reputable companies 2.Avoid signing contracts you do not understand 3.If it seems too good to be true, it probably is 4.Compare the cost of using credit vs. cash 5.Avoid rushing to a good deal (impulse buying)

6-31 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

6-32 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.

6-33 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

6-34 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