Transcript No Slide Title

Chapter 8:
Automobiles and Other
Major Purchases
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.
Objectives
• Negotiate effectively and make intelligent
decisions when undertaking major
expenditures.
• Evaluate your purchase decisions as a
guide for future behavior.
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
Steps Before Interacting with Seller
• Prioritize wants
• Do pre-shopping research
• Price
• Trade-in
• Cost of financing
• Fit expenditure into budget
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.com
Phase 2: Evaluation of Alternatives
Comparison shopping.
Selecting vehicle options-convenience, appeal, etc.
Comparing used vehicles- www.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
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.com
• New cars: Set-price dealers, car-buying services
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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
8-9
Phase 4: Postpurchase Activities
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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
Comparison Shopping
•Warranties
• Implied
• Express
•Service contracts
•Leasing vs. buying
•Balloon financing
Negotiate and Decide On Best Deal
• Successful negotiations require
information
• Make the decision
• Evaluate the decision
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
Decision Making Grid
Criteria
Decision
Weight (W)
Appliance A
Score (S)*
WxS
Appliance B
Score (S)
WxS
Appliance C
Score (S)
WxS
Price
30%
9
2.7
7
2.1
5
1.5
Durability
25%
6
1.5
8
2.0
10
2.5
Features
20%
6
1.2
8
1.6
10
2.0
Warranty
15%
6
0.9
10
1.5
8
1.2
Styling
10%
10
1.0
6
0.6
8
0.8
TOTAL
100%
*Using a 10-point scale.
7.3
7.8
8.0
Help When Buying
a New Vehicle
Buying services
• www.comsumerreports.org
Internet sites
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www.buyingadvice.com
www.carmax.com
www.carsbelowinvoice.com
www.edmunds.com
www.autosite.com
http://auto.consumerguide.com
8 - 14
Rental Car Basics
• Type
• Price and gas payment
• Additional fees
• Reservations
• Mileage restrictions
• Insurance and inspection
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
Automobile Financing
and Leasing
• Obtain all itemized costs
• Know underlying vehicle price
• Comparison shop for a lease
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
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
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