1. Chapter 8: Automobiles and Other Major Purchases

2. Objectives
Understand several guidelines to save money on major purchases.
Employ the three steps in wise buying that occur prior to interacting with sellers.
Comparison shop when buying or leasing vehicles and other major purchases.

3. Objectives
Negotiate effectively and make intelligent decisions when undertaking major expenditures.
Evaluate your purchase decisions as a guide for future behavior.

4. Guidelines for Wise Buying
Control buying on impulse
Pay cash
Buy at the right time
Don’t pay extra for a “name”
Recognize the high price of convenience shopping
Use life-cycle planning for major purchases

5. Steps Before Interacting with Seller
Prioritize wants
Do pre-shopping research
Price
Trade-in
Cost of financing
Fit expenditure into budget

6. Purchasing a Car: A Research-Based Approach - Phase 1: Preshopping Activities
Problem identification.
Information gathering.
Personal contacts.
Media information-television, websites
Independent testing organizations- Consumer Reports
Government agencies.
Online Sources –

7. Phase 2: Evaluation of Alternatives
Comparison shopping.
Selecting vehicle options-convenience, appeal, etc.
Comparing used vehicles-
Leasing an automobile
1) lower payments, small initial cash outlay
2) no ownership in vehicle
3) maximum # of miles/year; charged for extra miles.
4) know the capitalized cost of the lease, the money
factor, the monthly payment, number of payments,
and the residual value.
8-8

8. Phase 3: Determining Purchase Price
Negotiation
Know necessary information about the product.
Deal with a person of authority to give you a lower price or additional features.
Used-cars: Check newspaper ads, Kelly Blue Book (
New cars: Set-price dealers, car-buying services
Compare financing alternatives.
Variety of lenders-some lenders may pre-approve you.
Avoid being upside-down in your car.
Look for rebates or low-interest financing.
Consider the APR, total finance charge. Check out
8-9

9. Phase 4: Postpurchase Activities
Lemon Laws.
Maintenance and ownership costs
Use the item correctly to have improved performance and fewer repairs.
Investigate, evaluate and negotiate a variety of servicing options.
Operation costs; fixed and variable expenses.
Automobile servicing sources; dealers, service stations, garages, Wal-Mart, etc.
8-10

10. Comparison Shopping Warranties Implied Express Service contracts
Leasing vs. buying
Balloon financing

11. Negotiate and Decide On Best Deal
Successful negotiations require information
Make the decision
Evaluate the decision

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.
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.
8-20

13. Decision Making Grid Criteria Decision Weight (W) Appliance A
Score (S)* W x S
Appliance B
Score (S) W x S
Appliance C
Score (S) W x S
Price
30% 9
2.7 7
2.1 5
1.5
Durability
25% 6 8
2.0 10
2.5
Features
20%
1.2
1.6
Warranty
15%
0.9
Styling
10%
1.0
0.6
0.8
TOTAL
100%
7.3
7.8
8.0
*Using a 10-point scale.

14. Help When Buying a New Vehicle
Buying services
Internet sites

15. Rental Car Basics Type Price and gas payment Additional fees
Reservations
Mileage restrictions
Insurance and inspection

16. Get Things Fixed Get estimate in advance
Ask how long repairs will take
Get claim check
Ask to be given all replaced parts
Be available when at-home repairs are made
Get written receipt

17. Automobile Financing and Leasing
Obtain all itemized costs
Know underlying vehicle price
Comparison shop for a lease

18. Choose Between Low Interest and Rebate
Compare actual costs
Consider opportunity cost of rebate
Add opportunity cost of foregone rebate to finance charge of dealer financing

19. Buy a Used Vehicle Decide on features and options
Decide how much to spend
Select makes/models in price range
Start search
Check selection carefully
Negotiate and decide

20. Get the Most for Your Car-Buying Dollar
Buy used vehicles
Buy used vehicles from private owners
Visit dealerships at least three times
Negotiate price first
Consider leasing
Use up your vehicles