Wise Buying of Motor Vehicles and Other Purchases

Chapter 6

Consumer Buying Activities• Practical Purchasing Strategies– Timing Purchases– Store Selection– Brand Comparison

• National• Store• Private Label

– Label Information– Price Comparison

• Store convenience = higher prices• Ready-to-use = higher prices• Compare unit pricing• “sale” may not mean saving money

Warranties• Warranty—written guarantee from

the manufacturer or distributor that specifies the conditions under which the products can be returned, replaced, or repaired

Warranties

– Express warranty—created by the seller or manufacturer and has two forms: the full warranty and the limited warranty

– Full warranty—states that a defective product can be fixed or replaced during a reasonable amount of time

– Limited warranty—covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the costs for shipping or repairs

– Implied warranty—covers a product’s intended use or other basic understandings that are not in writing

Warranties

• Used Car Warranties– FTC requires used cars to have a buyer’s

guide sticker telling whether the vehicle comes with a warranty and, if so, what protection the dealer will provide

– If no warranty, car is sold “as is” and dealer accepts no responsibility for any repairs

– FTC used car regulations do not apply to vehicles purchased from private owners

Warranties • New Car Warranties– Provide buyers with an assurance of quality– Vary in time, mileage, and parts covered–Main conditions:

• Coverage of basic parts against defects• Power train coverage for the engine,

transmission, and drive train• Corrosion warranty, which usually applies to

only holes due to rust, not to surface rust• Statement regarding whether the warranty is

transferrable to other owners• Deductible information—set amount you must

pay before repairs are covered by the warranty

Warranties

• Service Contracts– An agreement between a business and a

consumer to cover the repair costs of a product– For a fee, they insure the buyer against losses

due to the cost of certain repairs– Automotive service contracts can cover repairs

not included in the manufacturer’s warranty• Can range in price from $400-$1000• Do not always include everything you might expect• May not be a wise financial decision because of costs

and exclusions

Buying Motor Vehicles• Phase 1—Preshopping Activities– Problem identification

• Do you need a car or do you need transportation?

– Information Gathering• Information is power• The better informed you are the better buying

decisions you will make• Information sources:

– Personal contacts– Business organizations– Media information– Independent testing organizations– Government agencies– Online sources

Buying Motor Vehicles • Phase 2 – Evaluating Alternatives– Selecting vehicle options• Mechanical devices to improve performance

– Larger engine– Transmission– Power steering, power brakes, cruise control

• Convenience option– Power seats, power locks– Air conditioning– Stereo systems– Rear window defoggers

• Aesthetic features– Metallic paint– Special trim– upholstery

Buying Motor Vehicles

• Phase 2 – Evaluating Alternatives– Comparing Used Vehicles• CPO (certified pre-owned vehicles)—nearly

new cars that come with the manufacture’s guarantee of quality• Sources:

– New car dealers– Used car dealers– Individuals– Auctions– Used car superstores (CarMax)

Buying Motor Vehicles • Phase 2 – Evaluating Alternatives– Leasing

• Contractual agreement with monthly payments for the use of an automobile over a set time period, typically 3, 4, or 5 years

• Advantages:– Only a small outflow of cash for security deposit– Monthly lease payments are usually lower– Agreement provides detailed records for business purposes– Usually able to obtain a more expensive vehicle

• Disadvantages– No ownership interest in the vehicle– Must meet requirements similar to qualifying for credit– Additional costs may be incurred for extra mileage, certain

repairs, turning the car in early, or even a move to another state

Buying Motor Vehicles

• Phase 3 – Determining Purchase Price– Used car price negotiation• Determine fair price

– Kelley blue book value– Edmund’s used car prices

• Factors that influence price:– Miles– Features/options– Conditions

Buying Motor Vehicles

• Phase 3 – Determining Purchase Price– Price bargaining for a new car• Sticker price—suggested retail price

– Base price plus costs of added features

• Invoice price—dealer’s cost• Difference between sticker and invoice is

available for negotiation• Information available:

– Edmund’s new car prices– Consumer Reports

Buying Motor Vehicles

• Phase 4 – Post-purchase Activities–Maintenance and Ownership Costs• Fixed costs: depreciation, interest on loan,

insurance, license, registration, taxes, fees• Variable costs: gasoline and oil, tires,

maintenance and repairs, parking and tolls• Maximize vehicle life by:

– Regular maintenance (tune-ups) and oil changes

Buying Motor Vehicles

• Phase 4 – Post-purchase Activities– Automobile Servicing Sources• Car dealers• Service stations• Independent auto repair shops• Mass merchandise retailers

– Sears, Wal-Mart, BJ’s

• Specialty shops**remember to deal with reputable auto

service businesses**

Resolving Consumer Complaints

• Step 1 – Return to Place of Purchase– Avoid yelling, threatening, or

demanding unreasonable action

• Step 2 – Contact Company Headquarters– Use a letter or email

Resolving Consumer Complaints

• Step 3 – Obtain Consumer Agency Assistance– Mediation: involves the use of a third party

• Not binding

– Arbitration: settlement of a difference by a third party• Binding agreement

• Step 4 – Take Legal Action– Consider various legal alternatives to

resolve problem

Legal Options for Consumers

• Small Claims Court– Claims involving amounts below a set dollar

amount (usually between $1,500 and $3,000)– Suggestions

• Become familiar with court procedures and filing fees

• Observe other cases to learn about the process• Present your case in a calm, polite, concise manner• Submit evidence such as photographs, contracts,

receipts, and other documents• Use witnesses who can testify on your behalf

Legal Options for Consumers

• Class-Action Suits– Legal action taken by a few individuals

on behalf of all people who have suffered the same alleged injustice

– Represented by one or more lawyers– All affected parties must be notified

• Using a Lawyer• Legal Aid Society– Provide legal assistance to people who

cannot afford their own attorney