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.

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

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

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

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

Wise Online Buying Activities

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

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

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

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

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

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

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

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

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

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

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 www.dealernet.com

Checking Out a Used Car

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

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

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 - http://www.edmunds.com Kelly Blue Book - http://www.kbb.com The more new cars sold the more used cars there are for sale, keeping the prices down

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: http://www.consumerreports.org Edmund’s New Car Prices: http://www.edmunds.com Until price of the new car is settled: Don’t mention any trade-in Don’t mention dealer financing

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 – www.lemonlawamerica.com

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

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

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

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

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

Extend Vehicle Life with Proper Maintenance

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

Common Automobile Repair Frauds

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 e-mail or letter

Resolving Consumer Complaints Step 3: Obtain consumer agency assistance BBB provides pre-purchase information File a complaint on line at http://www.bbb.org Mediation - third party negotiates (nonbinding) Arbitration - decision is binding State consumer protection office or agency Step 4: Take legal action

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

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)

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

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.

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

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