Chapter 6
Consumer
Purchasing
Strategies and Wise
Buying of Motor
Vehicles
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Wise Buying of Motor Vehicles
and Other Purchases
Chapter Objectives
1. Identify strategies for effective
consumer buying
2. Implement a process for making
consumer purchases
3. Describe steps to take to resolve
consumer problems
4. Evaluate legal alternatives available
to consumers
6-2
Objective 1
Identify Strategies for Effective
Consumer Buying
• Daily buying decisions involve tradeoffs
• 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
Practical Purchasing Strategies
• Timing purchases
– Price variations with the time of the year
• Store selection
– Location, price, selection, services
• Brand Comparison
– Private-label or store brands vs. national
brands
• Label Information
– Open dating
6-4
Practical Purchasing Strategies
• Price comparison
– Unit pricing = standard of measurement
– Coupons & rebates
– More store convenience higher prices
– Ready-to-use products higher prices
– Large is not always the best buy
– “Sale” prices not always a savings
– Online sources can save time
6-5
Price Analysis & Comparison
Shopping
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:
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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
6-6
Wise Buying
Techniques
Page 191
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
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
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 & comparison
– Price analysis
– Comparison shopping
6-10
Research-Based Buying
Major Purchase Decision-making
Process
• 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
6-11
Objective 2
Implement a Process for Making
Consumer Purchases
A Research-based Approach to Buying a Motor Vehicle
Page
194
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
6-13
Buying a Motor Vehicle
Phase 2 - Evaluating Alternatives
• Purchase alternatives
• Selecting vehicle options
• Comparing used vehicles
• Leasing a motor vehicle
6-14
Buying a Motor Vehicle
Purchase Alternatives
• Now or later?
• Cash or credit?
• Which brands?
• Which dealers?
• Rent vs. Buy?
6-15
Buying a Motor Vehicle
Selecting Vehicle Options
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
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Metallic paint
Special Trim
Leather interior
Sunroof
6-16
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
– http://www.dealernet.com
6-17
Buying a Motor Vehicle
Leasing a Motor Vehicle
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
6-18
Buying a Motor Vehicle
Financial Aspects of Leasing
• 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
6-19
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
6-20
Buying a Motor Vehicle
Price Bargaining for New Cars
• Sticker price = suggested retail price
– Includes base price + accessories
• Invoice price = dealers 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
6-21
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
6-22
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
6-23
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
6-24
Buying a Motor Vehicle
Phase 4: Post-purchase Activities
• Maintenance and ownership costs are
associated with some 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
6-25
Buying a Motor Vehicle
Phase 4: Post-purchase Activities
Automobile Operating Costs
Fixed Costs
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Depreciation
Interest on loan
Insurance
License, registration and taxes
Variable Costs
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Gas and oil
Tires
Maintenance and repairs
Parking and tolls
6-26
Buying a Motor Vehicle
Phase 4 - Post-purchase Activities
Automobile Operating Costs
• Keep good expense records
• Follow the maintenance schedule in the
manual
6-27
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
6-28
Objective 3
Describe Steps to Take to Resolve
Consumer Complaints
Resolving Consumer Complaints
Step 1: Return to place of purchase
• Calm, rational, persistent approach
Step 2: Contact company headquarters
• “Contact Us” on firm’s website
• Use e-mail or letter
6-29
Resolving Consumer Complaints
Step 3: Obtain consumer agency assistance
– BBB provides pre-purchase information
– File a complaint on line 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
6-30
Objective 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
6-31
