Chapter 8 Overheads

Report
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
• Calculate unit pricing or price per hours
worked.
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
BUYING VS LEASING AN
AUTOMOBILE
Purchase Cost
Example
Your Figures
Total vehicle cost, including
Leasing Costs
Example
Your Figures
Security deposit ($300)
sales tax ($20,000)
Down payment (or full amount
if paying cash)
$ 2,000.00
Monthly loan payment: $385 x 48 months
(this item is zero is vehicle is not financed).
Monthly lease payments:
18,480.00
$385 x 36 months
Opportunity cost of down payment
Opportunity cost of
(or total cost of vehicle if purchased with cash):
security deposit: $300
$2,000 x 4 years of financing/ownership x 3%
240
Less: Estimated value of vehicle at end of loan
term/ownership period
Total cost to buy
$ 13,860.00
security deposit x 3 yrs x 3%
27
End of lease charges (if
(6,000.00)
$ 14,720.00
applicable).
800
$ 14,687.00
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

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






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
Utah Lemon Law
Consumers who buy or lease a new automobile or motor home with significant defects that can't be repaired,
or in other words is simply a "lemon," can obtain relief under the Utah New Motor Vehicle Warranties Act
or "Lemon Law."
The Utah Lemon Law applies to new cars under warranty and was extended in 1990 to also cover new leased
vehicles and motor homes. The Lemon Law does NOT apply to used vehicles.
For your vehicle to qualify as a "lemon" under the Utah Lemon Law:
The vehicle must have been purchased in the state of Utah;
The vehicle must be new and under warranty;
The vehicle must weigh less than 12,000 pounds;
The defect must "substantially impair the use, market value or safety of the vehicle";
The vehicle must have been to the manufacturer to have the same defect resolved at least four times OR out
of service to the consumer a total of 30 days DURING the first year or the warranty period, whichever is
less (if your problems occur AFTER this time period, you do NOT qualify for the Utah Lemon Law);
The defect cannot be the result of abuse, neglect or unauthorized modifications of the vehicle; AND
The consumer must go through any informal dispute settlement or arbitration procedure the manufacturer may
have established. If your vehicle meets ALL of the criteria, your next step is to file a complaint with the
Division of Consumer Protection. Include with your complaint COPIES of any relevant documents,
including service records, and arbitration or dispute settlement records.
After your vehicle is determined to be a "lemon", you may qualify for either a replacement or a cash refund.
The manufacturer may charge you a "reasonable" amount for use of the vehicle as prescribed by the Utah
Lemon Law, usually 10 to 23 cents per mile. You can have the Division try to obtain restitution for you or
you can take private action with your own attorney.
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
•
•
•
•
•
•
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
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
Resolving Company Complaints
1.
2.
3.
•
•
4.
•
•
Return to Place of Purchase
Contact Company Headquarters
Obtain Consumer Agency Assistance
Mediation
Arbitration
Take Legal Action
Small Claims Court
Class-Action Suits

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