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 – www.edmunds.com, www.caranddriver.com, www.autoweb.comwww.edmunds.com www.caranddriver.comwww.autoweb.com

7. Phase 2: Evaluation of Alternatives Comparison shopping. Selecting vehicle options-convenience, appeal, etc. Comparing used vehicles- www.carmax.com, www.carfax.comwww.carmax.com www.carfax.com 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 (www.kbb.com), www.edmunds.comwww.kbb.comwww.edmunds.com 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 www.bankrate.com www.bankrate.com 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. Successful negotiations require information Make the decision Evaluate the decision Negotiate and Decide On Best Deal

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 Price30%92.772.151.5 Durability25%61.582.0102.5 Features20%61.281.6102.0 Warranty15%60.9101.581.2 Styling10%101.060.680.8 TOTAL100%7.37.88.0 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 *Using a 10-point scale.

14. Buying services www.comsumerreports.org Internet sites www.buyingadvice.com www.carmax.com www.carsbelowinvoice.com www.edmunds.com www.autosite.com http://auto.consumerguide.com Help When Buying a New Vehicle 8 - 14

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