1. Lesson One: Buying a New or Used Car
© 2005 Consumer Jungle

2. Budgeting for a Car Purchase
Know Your Budget
What are your fixed expenses?
How much can you afford for a vehicle?
Recommend no more than 10% of monthly income.
Down Payment or Trade-In?
Double-check your estimate by prequalifying for a loan at a:
Bank
Credit Union
Car is interchangeable for vehicle throughout the lecture.
Budget: A plan for spending and saving money during a particular period.
Down payment: Amount of your own money paid upfront for a vehicle.
Trade-in value: The value of the vehicle you are trading in for a newer or different vehicle.
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3. Vehicle Expenses Cost of the Vehicle Sales Tax Routine Maintenance
Insurance
License & Registration
Unexpected Repairs
Gas
Depreciation
All of these add up quickly!
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4. New vs. Used How much is a new car worth 5 years from now?
Most Cars: % of the original value
Honda Accord or Toyota Camry: 60% of original value
Source: Kelly Blue Book
The first decision is to buy a new car or a used car.
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5. Depreciation: The steady decline in the resale value of any vehicle that you buy.
This graph illustrates how quickly new cars depreciate over 3 years.
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6. A Big and Important Purchase
New Vehicle is the 2nd most expensive purchase in life.
1st is a home
A car is a long-term commitment
Average price:
New vehicle: $25,206.
Used vehicle: $15,568
Know the Basics
VIN, Manufacturer, Make, Model, Year, and Type
A Used vehicle may also be the 2nd most expensive purchase in life. $10,000 difference between the average new vehicle and used vehicle price.
The average price consumers paid for a new vehicle in June 2004 was $25,206, with new cars selling at an average of $22,537 and new trucks at $27,329.
The average price of a used vehicle in June 2004 was $15,568. Used cars sold for an average price of $13,973. Used trucks sold for an average of $17,454—up 4.2 percent.
Source: JD Powers & Associates
A car is a long-term commitment and which car a student buys is n important decision. The student should have a plan for how he or she is going to use the car now and in the future. Does he/she need a truck, a fuel-efficient commuter car, or a car with towing capacity?
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7. Vehicle Identification Number
VIN is a 17-character number
Where is it?
Left side of the dash
Inside of driver’s doorjamb
Vehicle’s title card
Information specific to the vehicle
Vehicle Identification Number (VIN): A 17-digit character number used to identify specific information about each car.
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8. Manufacturer & Make
Manufacturer:: The company that builds the car. The manufacturer builds makes of cars.
Ford manufacturers Mercury and Lincoln cars.
General Motors manufacturers Pontiac, Buick, Cadillac, Oldsmobile, Hummer, Saturn, and Chevrolet cars.
Honda manufactures Acura cars.
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9. Model Specific type of make The model year Taurus (Ford)
Accord (Honda)
Altima (Nissan)
Corrola (Toyota)
The model year
Not necessarily the year it was built
The date of manufacture is listed inside the driver’s door, on the vehicle certification label. This is the actual month and year that the vehicle rolled off the assembly line.
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10. Type Pickups Sport Utility Vehicles Sport Utility Trucks Compact Cars
Mid-size Cars
Full-size Cars
Mini-vans
Full-size Vans
Sports Cars
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11. Car Buying: 4-Step Process
Research
Check out the cars
Set a target price
Shop for financing
To ensure that you get the right vehicle at the best price, you need to be an informed buyer. That means investing time in research and preparation.
Source: Consumer Reports
© 2005 Consumer Jungle

12. Step 1: Research
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13. Sources to Compare Models Step 1: Research
The person who does their research always gets a good deal.
Online Sources:
Auto Manufacturers
Pricing sites
Consumer Reports
Fuel Economy sites
Safety sites
To accurately compare vehicles and determine the best one for your needs, you need to get as much information as you can about any models you’re considering. Fortunately, the Internet makes that easy to do. But, just as cars can vary greatly in quality, so can sources of information. The key is knowing what to look for and the best sources from which to get the information.
Research should be your #1 Priority.
© 2005 Consumer Jungle

14. Auto Manufacturer Websites Step 1: Research
Good for:
Basic Information
Models & Trim Levels
Retail Pricing
Warranties
Dealership Locations
Search of Certified Used Cars
Main purpose of auto sites is to promote their own vehicles.
Manufacturer Name
Website
Daimler Chrysler
Ford Motor Company
General Motors
Honda Motor Company
Hyundai Motor Company
Isuzu
Kia Motors America
Mitsubishi Motors
Toyota Motor Corporation
Volkswagen
The main purpose of auto sites is to promote their own vehicles, so the model information is the same as advertising.
© 2005 Consumer Jungle

15. Pricing Websites Step 1: Research
Good for:
New-Car Retail Prices
Used-Car Retail Prices
Dealer Invoices
Incentives
Other Pricing Variables
Name
Website
AutoTrader
Edmunds
IntelliChoice
Kelley Blue Book
National Automobile Dealership Association
VMR (used cars only)
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16. Consumer Reports Step 1: Research
Vehicle Ratings
Model Reviews
Reliability Ratings
Fuel Economy
Safety Ratings
Subscribe online
1 month ($5) or 1 year ($26)
Last 4 years of data
Consumer Report’s Vehicle Ratings help you narrow you list of vehicles by giving you a quick look at how tested vehicles compare with their competitors in several areas. The Ratings charts show you which vehicles meet CRs stringent requirements to be recommended.
Consumer Report’s Model Reviews give you an in-depth perspective of a vehicle’s performance, comfort and convenience, and overall driving character, as well as insight into deficiencies that might not be apparent on a test drive.
Consumer Reports conducts the most comprehensive auto-test program of any U.S. publication or website. It differs from other reviewers in several significant ways:
They don’t accept advertising
They buy all of their own test vehicles
They conduct more than 50 individual tests and evaluations on each vehicle over several months and thousands of miles.
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17. New & Used Car Buying Guides Step 1: Research
This is what the guides that Consumer Reports puts out looks like.
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18. www.fueleconomy.gov Step 1: Research
Lists MPG for:
City, Highway, and combined
Compare MPG for 4 models side by side
Customize an annual fuel estimate based on the cost of gas in your area, and the percentage of highway to city driving.
© 2005 Consumer Jungle

19. Safety and Crash Tests Step 1: Research
Insurance Institute for Highway Safety
Tests and rates off-set frontal crashes:
Good
Acceptable
Marginal
Poor
National Highway Traffic Safety Administration
Tests and rates full-frontal & side impact crashes on a 5-star scale :
5-star rating is the safest(*****)
How well a vehicle protects its occupants from injury depends primarily on its structural design and safety systems. Safety belts are the single most important element, with air-bag systems providing additional protection. In addition, all vehicles have “crumple zones” in the front that are designed to collapse in a way that helps absorb the crash energy and minimize any deformation of the cabin. The better the vehicle manages this energy, the less chance that occupants will suffer serious injury. The only independent crash-test results are those from the National Highway Traffic Safety Administration (NHTSA) and the Insurance Institute for Highway Safety (IIHS). NHTSA conducts two types of crash tests: full frontal and side impact. NHTSA tests are a good indication of how well a vehicle’s safety belts and air bags protect the occupants in specific types of impacts. Each is scored on a five-star scale, with fewer stars indicating a greater likelihood of injury or death. Separate ratings are given in the frontal test for the driver and front passenger, and in the side impact for the driver and left rear passenger. The IIHS tests vehicles in an offset-frontal crash, the more common type of head-on crash. In an offset-crash test, only the portion of the vehicle in front of the driver impacts a barrier. This test challenges the car’s structural integrity and its ability to protect the area around the driver without collapsing. Vehicles are rated as Good, Acceptable, Marginal, or Poor.
Source: Consumer Reports
© 2005 Consumer Jungle

20. Cool Cars = Costly Repairs
Average Repair Bill is $3,912
Repairs Costs have increased 60% since 1992
2005 BMW 5 Series
Adaptive headlight $2,035
Parking Sensor $372
Adaptive Cruise Sensor $2,222
When considering the cost of a car, you also need to think about how much it is going to cost to replace items in the car. Expensive cars have expensive parts. The prices listed below are for parts only and does not include the cost of labor.
Average Repair Bill $3,912
Repairs Costs have increased 60% since 1992
Source: Highway Loss Data Institute
Examples include:
2004 Cadillac Escalade
Ultrasonic Rear Parking Assistant $924
Xenon Headlight $765
Heated Side Mirror $997
2005 BMW 5 Series
Adaptive headlight $2,035
Parking Sensor $372
Adaptive Cruise Sensor $2,222
Adaptive headlights change the amount of lighting on the road depending on driving conditions and position on the road using xenon lights.
Adaptive Cruise Sensor keeps a set amount of distance between your car and the car ahead of you when you have cruise control on.
Source: Weston, Liz Pulliam, “Cool Cars, Costly Repairs: High-tech cars means high priced repairs” CNBC, June 6, 2006.
© 2005 Consumer Jungle

21. Step 2: Check out the Cars
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22. Where to Purchase a Car Step 2: Check out the cars
Dealerships
Take your Time: only look at 3 -4 cars a day.
If you are tired at the end of the day, and just want to get it over with, a salesman will be able to sell you anything.
Other Sources:
Private-Party Sellers
Internet
The following information will cover looking for a car at a dealership.
Always make sure you are doing business with someone that you would do business with for a long time.
Check with friends and family and see what they think of that business.
The Better Business Bureau (BBB) is a great source for checking the history of local business. Repair facilities, dealerships, banks with a bad reputation will have a history at the BBB.
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23. Test Drive Step 2: Check out the cars
Normal Travel Routes
Listen for noises
Drive variety of roads:
Windy
Bumpy
Steep
Drive for at least 10 minutes and 10 miles
Try stopping hard to make sure the brakes are in good condition. Make sure no one is behind you.
© 2005 Consumer Jungle

24. Types of Used Cars Step 2: Check out the cars
Program Factory Cars
Fleet-leased (Rental) Cars that may have 10,000 miles on it but they are still under warranty.
Certified Used Car
Certified cars come with warranties
Must past inspection
Certified Used Car: A car that has passed through the dealer's mechanical and physical inspection.
© 2005 Consumer Jungle

25. Check out a Used Car Step 2: Check out the cars
Even if the car is a dealer-certified used car:
Get a Carfax report
Take the car to an independent mechanic for an unbiased, second opinion.
Cost: $50 - $70
ASC certified mechanics are best.
ASE Certified Mechanic: Automotive Service Excellence (ASE) is an impartial, third-party endorsement of a mechanic’s knowledge and experience.
© 2005 Consumer Jungle

26. CarFax Step 2: Check out the cars
Need VIN
$24.99 unlimited vehicle reports for 30 days($19.99 single report)
Free Lemon Check will give you any buyback or lemon records
Information Provided:
Salvage history?
Odometer fraud?
Flood damage?
Multiple owners?
Major accident damage?
Fire damage?
Nearly all State Lemon Law Statutes are similar to the Federal Magnuson-Moss Warranty Act which makes breach of warranty a violation of federal law. All States have enacted their own Warranty Acts and many States have enacted specific statutes that pertain to automobile warranties.
Lemon: A vehicle that continues to have a defect that substantially impairs its use, value, or safety. Generally, if the car has been repaired 4 or more times for the same defect within the warranty period and the defect has not been fixed, the car qualifies as a lemon.
The lemon laws are different in each state
© 2005 Consumer Jungle

27. Used Cars: Things to Check on the Exterior Step 2: Check out the cars
Body Condition
Prior work will reveal paint and bolts
Glass
Paint
Rust or Damage
Tires
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28. Used Cars: Things to Check While the Car is on the Floor Step 2: Check out the cars
Under Hood
Oil Leaks
Water Pump Play
Battery & Connections
Belts, Hoses & Clamps
Radiator & Coolant
Carburetor Air Filter
Engine Oil
Power Steering, Pump Oil
Safety Items
Lights
Horn
Windshield Wiper
Windshield Washer
© 2005 Consumer Jungle

29. Used Cars: Things to Check While the Car is on the Lift Step 2: Check out the cars
Brake Fluid Leaks
Exhaust System
Engine & Transmission Leaks
Rear Axle Leak
Frame or Structure Damage
Suspension
Tie Rod Ends
Idler Arm
Shock Absorbers
Springs
Tires
Brakes (Front)
C.V. Boot
© 2005 Consumer Jungle

30. Step 3: Set a target price
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31. Pricing Terms Step 1: Research
Invoice Price
Base Price
Monroney Sticker Price (MSRP)
Dealer List Price
Beware of Bait & Switch
Advertise one low-priced car and then switch you to another.
Beware of 30-day Return
Negotiations often have a vocabulary of their own. Here are some terms you may hear when you’re researching prices and negotiating a price with the dealer.
Invoice Price: The manufacturer’s initial charge to the dealer. This usually is higher than the dealer’s final cost because dealers receive rebates, allowances, discounts, and incentive awards.
Base Price: The cost of the car without options, but includes standard equipment and factory warranty.
Monroney Sticker Price (MSRP): Shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price, the manufacturer’s transportation charge, and the fuel economy (mileage). Affixed to the car window, this label is required by federal law, and may be removed only by the purchaser.
Dealer List Price: A supplemental sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP) and undercoating.
Bait and Switch: The practice of advertising a car at an unrealistically low price, then switching a customer to a different vehicle at a higher price.
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30-day Return: Loophole-alooza. Some manufacturers offer a 30-day, money-back guarantee. This is a prime example of a promise that falls apart on closer inspection.
Buyers are allowed to return a new car for any reason within a month. But Detroit News columnist Brian J. O'Connor dubbed this "The World's Most Expensive Test Drive" because of all the fees, taxes and other expenses a consumer would pay. Dealers can charge a 5% restocking fee, add a 50-cent-per-mile penalty and hang on to any sales tax paid, among other costs. The buyer gets only what's left.
O'Connor figured that someone buying a $34,000 vehicle could be out $4,600, or 13.5% of the purchase price, if she brought the car back. That's a daily cost of $153 if she drove it until the very end, much more if she returned it sooner.
Source: O’Conner, Brian J., “The World's Most Expensive Test Drive," Detroit News, October 5, 2006.
"In the end," O'Connor concludes, "dealers and others say they suspect the 30-Day Return Program isn't designed to be used at all, but is more of a public-relations tool to strengthen Chrysler's quality image and soothe any misgivings of any nervous buyers."
© 2005 Consumer Jungle

32. Making an Offer
Armed with research, you can make a firm and reasonable offer to the dealer.
A reasonable offer is 2% - 8% above the dealer’s cost.
Get the price in writing.
The salesman will sale you the car at your reasonable offer with hopes that they’ll make more profit with the financing and extras.
Calculating a
Reasonable Offer
Dealer Invoice Price
- Factory-to-Dealer Holdbacks
- Factory-to-Dealer Incentives
= Dealer Cost
Dealer Cost
x – 1.08
= Your Reasonable Offer
Factory-to-Dealer Holdbacks: A percentage of the invoice on a day sales turn. It is usually 2-3% of the dealer invoice price that is refunded to the dealer after selling the car.
Factory-to-Dealer Incentives: A Bonus or reimbursement offered on a regional or national level that is refunded to the dealer after selling the car.
The best way to negotiate a vehicle's price is to have a starting price, say the CR Bottom Line Price plus 2-8% percent. The dealer has to make some profit on the transaction. The dealer pays for flooring which is the cost to finance the car.
To provide a better starting point for negotiations, Consumer Reports offers the CR Bottom Line Price, which factors in any rebates, holdbacks, or dealer incentives to give you a more realistic idea of how much profit the dealer is making on the vehicle.
To tailor the CR Bottom Line Price to a specific vehicle, figure in the dealer-invoice price for any options or packages in which you're interested (available as part of Consumer Reports' New Car Price Report) and add those to the Bottom Line Price. You have to purchase the CR New Car Price Reports. 3-month subscription for unlimited reports = $39.99 as of December 2005.
Once you have the price set, get it in writing. Remember. If it is not in writing, it is not true.
© 2005 Consumer Jungle

33. Separate Transactions
Don’t combine transactions:
Trade-in
New Car
Financing
You will get a better deal if you negotiate each one individually.
Buying a car is not a logical decision, it is an emotional decision.
The person who jumps up and down and buys the car that looks nice is an easy sale for the salesman. If you are prepared, you will get the best deal.
Remember that you are not given a 3-day right of rescindment to back out of a deal. May also be referred to as a “cooling off period”.
When you sign the paperwork and leave with the vehicle, you are the owner.
Used vehicles are sold AS IS with no warranty unless written otherwise. It is very hard to try to get a repair afterwards if it was not in writing. It is the buyers responsibility to make sure everything is answered before they purchase the vehicle.
Whether you are selling your used car on your own or trading it in, you will want to establish the value through Kelly Blue Book, NADA, Edmunds, or AutoTrader.
© 2005 Consumer Jungle