CHAPTER 8VEHICLES AND OTHER MAJOR

PURCHASES

FIN 235SPRING 2013

A. Steps in the planned buying processB. The process of comparison shoppingC. Negotiate and decide effectively when

making major purchasesD. Use effective complaint procedures

I. LEARNING OBJECTIVES

A. Determine what you need in contrast to what you would like (need vs. want)

B. Gather information on manufacturers’ various makes and models

1. Features2. Warrantees

a. Expressed vs. Impliedb. Full vs. Limited (paying for parts and labor during

warrantee period)c. Extended warrantees can be quite expensive and

have restrictionsd. Ditto for service contracts

II. PREPARATIONS BEFORE THE BUY DECISION

3. Mileage and maintenance costs4. New versus pre-owned (or refurbished)5. Trade-in value

A. Comparison Shopping1. Finding the best deal2. Financing Costs

II. PREPARATIONS BEFORE THE BUY DECISION

A. Leasing versus Buy1. Hidden costs of leasing: end of lease value is

affected by mileage and damage2. Most leases require significant upfront cash

(capital reduction)3. All leases have an implicit cost of capital4. You do not build equity (ownership)5. Leasing is best if costs can be written off a

business expense6. Early termination fees can be quite costly

B. Balloon loans to be avoidedC. Gap insurance can be quite costly

III. FACTORS AFFECTING THE FINANCING DECISION

1. An Informed buyer is a strong buyer2. MSRP: Mfr. Suggested Retail Price (the fair

trade price price)3. Dealer Invoice price (what they “pay” to

manufacturer)4. Holdbacks reduce factory invoice to dealer5. Interest rate may be subject to negotiation6. Trade-in values affect cost of the deal and

dealers ultimate profits7. Make the final decision at home rather than

the dealership

IV. NEGOTIATING THE DEAL

A. Three day cooling off period works only if purchase occurs outside the store

B. Many states have lemon lawsC. Complaint may lead to mediation or arbitrationD. Small claims court ($500 to $2500 is typical range)

VI.HOMEWORKA. Do the Math: 3, 4 B. On the ‘Net: 1, 2C. Be Your Own Personal Financial Planner

1. 5 – Rebate or Low-Rate Financing?2. 6 – Major purchase Decision-making Grid

V. WHAT TO DO IF THE PURCHASE GOES SOUTH