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.
Consumer Purchasing Strategies
and Wise Buying of Motor Vehicles
Chapter Learning Objectives
LO6.1
LO6.2
Identify strategies for effective consumer buying
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
6-2
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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

6-3
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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
6-4
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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
◦
◦
◦
◦
◦
6-5
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Wise Online
Buying
Activities
6-6
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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
6-7
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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
6-8
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
6-9
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Research-Based Buying
Major Purchase Decision-Making Process

Phase 3: Selection and Purchase

Phase 4: Post-Purchase Activities
◦ Negotiation
◦ Payment alternatives
◦ Acquisition and installation
◦ Maintenance and operation
◦ After-sale service alternatives
◦ Resolution of purchase concerns
6-10
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Learning Objective LO6.2
Implement a Process for Making Consumer
Purchases
Major Consumer Purchases: Buying Motor Vehicles
6-11
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
6-12
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Buying a Motor Vehicle
Phase 2 - Evaluating Alternatives

Purchase alternatives

Selecting vehicle options

Comparing used vehicles

Leasing a motor vehicle
6-13
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Buying a Motor Vehicle
Purchase Alternatives

Now or later?

Cash or credit?

Which brands?

Which stores?

Rent vs. Buy?
6-14
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Price Analysis and Comparison
Shopping

Price Analysis

Comparison shopping can be beneficial
when:
◦ Prices can vary for all types of products
◦ Assess differences in quality relative to price
◦ Price and quality are not always closely related
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
◦
◦
◦
◦
6-15
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Buying a Motor Vehicle
Selecting Vehicle Options

Performance Options

Comfort and Convenience Options

Aesthetic Features
◦ Mechanical devices
◦ Engine size, transmission, power steering,
cruise control, and antilock brakes
◦ Power seats, air conditioning
◦ Stereo systems, power locks
◦
◦
◦
◦
Metallic paint
Special Trim
Leather interior
Sunroof
6-16
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Buying a Motor Vehicle
Comparing Used Vehicles
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
◦
◦
◦
◦
6-17
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Checking Out a Used Car
6-18
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Buying a Motor Vehicle
Leasing

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
6-19
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Buying a Motor Vehicle
Financial Aspects of Leasing

Capitalized cost = price of the vehicle


Money factor = interest rate
Payment schedule

Residual value = expected value of the
◦ Average buyer pays 92% of list
◦ Average leaser pays 96% of list
◦ Monthly payment amount
◦ number of payments
vehicle at the end of the lease
◦ Return, keep, or sell the vehicle.
◦ If the residual value < market value, return it
6-20
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
◦ Kelly Blue Book - http://www.kbb.com
The more new cars sold the more used cars
there are for sale, keeping the prices down
6-21
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
◦ Edmund’s New Car Prices: http://www.edmunds.com

Until price of the new car is settled
◦ Don’t mention any trade-in
◦ Don’t mention dealer financing
6-22
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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.com
6-23
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Buying a Motor Vehicle
Price Bargaining for New Cars

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
6-24
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Buying a Motor Vehicle
Comparing Financial Alternatives

Financing sources

Low payment or low rate ≠ best

Check the APR and any rebates
◦ Banks, credit unions, other financial
institutions, finance companies, or dealer
financing
◦ Get preapproved for a certain amount
◦ Upside down equity = car is worth less than
amount still owed on the loan (negative
equity)
6-25
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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

6-26
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
6-27
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
6-28
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Extend Vehicle Life with Proper
Maintenance
6-29
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
◦
◦
◦
◦
6-30
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Common Automobile Repair Frauds
6-31
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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
6-32
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Resolving Consumer Complaints
Step 3: Consumer agency assistance
◦ BBB provides pre-purchase information
◦ File a complaint online at http://www.bbb.org
◦ Mediation - third party negotiates (nonbinding)
◦ Arbitration - decision is binding
◦ State consumer protection office or agency
Step 4: Take legal action
6-33
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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
6-34
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Personal Consumer Protection
1.
2.
3.
4.
5.
Do business only with reputable
companies
Avoid signing contracts you do not
understand
If it seems too good to be true, it
probably is
Compare the cost of using credit vs.
cash
Avoid rushing to a good deal (impulse
buying)
6-35
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Chapter Summary
Learning Objective LO6.1

Common strategies for effective
purchasing include:
1.
2.
3.
4.
5.
Timing purchases
Comparing stores and brands
Using label information
Computing unit prices
Evaluating warranties
6-36
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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
6-37
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Chapter Summary
Learning Objective LO6.3

Most consumer problems can be
resolved by following these steps:
1.
2.
3.
4.
Initial communication
Communication with the company
Consumer agency assistance
Legal action
6-38
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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
6-39
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