1. Chapter 6 Consumer Purchasing Strategies and Wise Buying of Motor Vehicles Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. 6-2 Consumer Purchasing Strategies and Wise Buying of Motor Vehicles 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

3. 6-3 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

4. 6-4 Practical Purchasing Strategies Timing purchases ◦ Price variations with the time of the year Purchase location ◦ Location, price, selection, services Brand comparison ◦ Private-label or store brands vs. national brands Label information ◦ Open dating Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

5. 6-5 Practical Purchasing Strategies Price comparison ◦ Unit pricing = standard unit of measurement ◦ Coupons and rebates ◦ More store convenience  higher prices ◦ Ready-to-use products  higher prices ◦ Large is not always the best buy – check unit prices ◦ “Sale” prices not always a savings ◦ Online sources can save time Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

6. 6-6 Wise Online Buying Activities Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

7. 6-7 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

8. 6-8 Warranties Used Car Warranties ◦ FTC required “buyers’ guide sticker” ◦ Warranty of merchantability New Car Warranties ◦ Basic parts against defects ◦ Power train coverage ◦ Corrosion warranty Service Contracts ◦ Extended warranty Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

9. 6-9 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

10. 6-10 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 Research-Based Buying Major Purchase Decision-Making Process Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

11. 6-11 Learning Objective LO6.2 Implement a Process for Making Consumer Purchases Major Consumer Purchases: Buying Motor Vehicles Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

12. 6-12 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

13. 6-13 Purchase alternatives Selecting vehicle options Comparing used vehicles Leasing a motor vehicle Buying a Motor Vehicle Phase 2 - Evaluating Alternatives Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

14. 6-14 Now or later? Cash or credit? Which brands? Which stores? Rent vs. Buy? Buying a Motor Vehicle Purchase Alternatives Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

15. 6-15 Price Analysis ◦ 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 Price Analysis and Comparison Shopping Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

16. 6-16 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 Selecting Vehicle Options Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

17. 6-17 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 www.dealernet.com Buying a Motor Vehicle Comparing Used Vehicles Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

18. 6-18 Checking Out a Used Car Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

19. 6-19 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 Leasing Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

20. 6-20 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 Financial Aspects of Leasing Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

21. 6-21 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 http://www.edmunds.com ◦ Kelly Blue Book - http://www.kbb.com http://www.kbb.com The more new cars sold the more used cars there are for sale, keeping the prices down Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

22. 6-22 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 http://www.consumerreports.org ◦ Edmund’s New Car Prices: http://www.edmunds.com http://www.edmunds.com Until price of the new car is settled ◦ Don’t mention any trade-in ◦ Don’t mention dealer financing Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

23. 6-23 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.comwww.lemonlawamerica.com Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

24. 6-24 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 Price Bargaining for New Cars Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

25. 6-25 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

26. 6-26 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

27. 6-27 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

28. 6-28 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

29. 6-29 Extend Vehicle Life with Proper Maintenance Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

30. 6-30 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

31. 6-31 Common Automobile Repair Frauds Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

32. 6-32 Learning Objective LO6.3 Describe Steps to Take to Resolve Consumer Complaints Resolving Consumer Complaints Step 1: Initial communication Calm, rational, persistent approach Step 2: Communication with the company “Contact Us” on firm’s website Use e-mail or letter Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

33. 6-33 Resolving Consumer Complaints Step 3: Consumer agency assistance ◦ BBB provides pre-purchase information ◦ File a complaint online at http://www.bbb.orghttp://www.bbb.org ◦ Mediation - third party negotiates (nonbinding) ◦ Arbitration - decision is binding ◦ State consumer protection office or agency Step 4: Take legal action Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

34. 6-34 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

35. 6-35 Personal Consumer Protection 1. Do business only with reputable companies 2. Avoid signing contracts you do not understand 3. If it seems too good to be true, it probably is 4. Compare the cost of using credit vs. cash 5. Avoid rushing to a good deal (impulse buying) Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

36. 6-36 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

37. 6-37 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

38. 6-38 Chapter Summary Learning Objective LO6.3 Most consumer problems can be resolved by following these steps: 1.Initial communication 2.Communication with the company 3.Consumer agency assistance 4.Legal action Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

39. 6-39 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 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.