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
Calculate unit pricing or price per hours worked.

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.
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8. BUYING VS LEASING AN AUTOMOBILE
Purchase Cost
Example
Your Figures
Leasing Costs
Total vehicle cost, including
Security deposit ($300)
sales tax ($20,000)
Down payment (or full amount
if paying cash)
$ 2,000.00
Monthly loan payment: $385 x 48 months
Monthly lease payments:
(this item is zero is vehicle is not financed).
18,480.00
$385 x 36 months
$ 13,860.00
Opportunity cost of down payment
Opportunity cost of
(or total cost of vehicle if purchased with cash):
security deposit: $300
$2,000 x 4 years of financing/ownership x 3%
240
security deposit x 3 yrs x 3% 27
Less: Estimated value of vehicle at end of loan
End of lease charges (if
term/ownership period
(6,000.00)
applicable).
800
Total cost to buy
$ 14,720.00
$ 14,687.00

9. 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
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10. 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.
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11. Utah Lemon Law
Consumers who buy or lease a new automobile or motor home with significant defects that can't be repaired, or in other words is simply a "lemon," can obtain relief under the Utah New Motor Vehicle Warranties Act or "Lemon Law." The Utah Lemon Law applies to new cars under warranty and was extended in 1990 to also cover new leased vehicles and motor homes. The Lemon Law does NOT apply to used vehicles. For your vehicle to qualify as a "lemon" under the Utah Lemon Law: The vehicle must have been purchased in the state of Utah; The vehicle must be new and under warranty; The vehicle must weigh less than 12,000 pounds; The defect must "substantially impair the use, market value or safety of the vehicle"; The vehicle must have been to the manufacturer to have the same defect resolved at least four times OR out of service to the consumer a total of 30 days DURING the first year or the warranty period, whichever is less (if your problems occur AFTER this time period, you do NOT qualify for the Utah Lemon Law); The defect cannot be the result of abuse, neglect or unauthorized modifications of the vehicle; AND The consumer must go through any informal dispute settlement or arbitration procedure the manufacturer may have established. If your vehicle meets ALL of the criteria, your next step is to file a complaint with the Division of Consumer Protection. Include with your complaint COPIES of any relevant documents, including service records, and arbitration or dispute settlement records. After your vehicle is determined to be a "lemon", you may qualify for either a replacement or a cash refund. The manufacturer may charge you a "reasonable" amount for use of the vehicle as prescribed by the Utah Lemon Law, usually 10 to 23 cents per mile. You can have the Division try to obtain restitution for you or you can take private action with your own attorney.

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

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

14. 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.
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15. 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.

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

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

18. 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

19. 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

20. 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

21. 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

22. Resolving Company Complaints
Return to Place of Purchase
Contact Company Headquarters
Obtain Consumer Agency Assistance
Mediation
Arbitration
Take Legal Action
Small Claims Court
Class-Action Suits