chapter 7 transportation and major consumer decisions

Chapter 7 Transportation and Major Consumer Decisions

• Steps in Making a Major Purchase– Household Goal– Recognition of Problem– Evaluation of Opportunity– Purchase Decision– Purchase Act– Postpurchase Evaluation


• Major Purchase Decisions– Comparison shopping key in major purchase

decisionsProcess of comparing products, prices, and services

offered by several stores to get the best valuesFunction of a limited budget

– Major decision purchases include: new furniture, household appliances,

personal computers, vacations


• Benefits of a Step-by-Step ApproachBy following a deliberate approach to purchasing, consumers usually are able to extend the purchasing power of their funds

Avoids the danger of impulse buying -(Buying on the spur of the moment with little or no consideration for other brands)


• Other Benefits of a Step-by-Step Approach– Informed consumers better able to take

advantage of sales and bargains

– By planning purchases, able to pay for them in most convenient and least expensive way

– By controlling expenditures, consumers less likely to buy something that does not fit into their budget


Two Key Phases in Decision-making Purchase

1. Separating needs from wants– A need is something thought to be a necessity.

Example: a new car

– A want is something considered to be unnecessary. Example: a new Mercedes

2. Fitting a major expenditure into the budget


• Fitting a Major Expenditure into Your Budget– Ask “Can I really afford it?”

• New purchase can jeopardize a carefully planned budget

• A new purchase which is financed can have future financial consequences

– Ask “How am I going to pay for it?”• May require cutting back on monthly expenditures• May require reduction in contribution to savings each

month


• Consumer Fraud and AbuseMail and telephone fraud -- rank among the

highest number of complaints. Amount of money lost over $500 million yearly.

Home and auto repairs -- presented need for major work when only minor work was required


• Types of FraudDeceptive advertising -- advertisements

that are not completely ethical such as “fat-free” and “low-fat” in certain foods

Deceptive sales practices and pricing -- Sales advertised carry only limited number of sale items which sell out quickly.


• Sources of Consumer Assistance– Better Business Bureau– Consumers Union– Underwriters Laboratories– The Media– Selected Federal Agencies– State and Local Government Consumer

Protection Services


• Handling the Problems Associated With PurchasesYou may take direct action by contacting the company yourself

1. Decide what the problem is and what form of restitution you want.Do you want money back? A new model? The present model fixed?Have all documents available including sales receipts, warranties, etc.


• Handling the Problems2. Contact person who sold you the item.

If this doesn’t resolve problem, complain to supervisor or manager.

3. If still unresolved, write letter to company.Send letter to consumer affairs department of

company or CEO. Make sure your letter includes all necessary information.


• Taking Third-Party Action

– May involve contacting federal, state, or local consumer affairs offices

– May involve contacting private organizations like Better Business Bureau


• Last step: small-claims court– Handle disputes involving small amts. of

money (< $1,000)– Only small fee is charged– After hearing both sides, court orders claim

be settled in favor of one of the parties– No appeal is allowed


• The Transportation Decision– Car the third most important decision behind

house, college education

– First determine if you really need a car

– Necessity of car function of where you live• Urban areas -- car less convenient, less efficient than

public transportation

• Rural and suburban areas -- isolation without car transportation


• Costs Associated with Owning a CarAverage cost of new car to own and operate is $0.46/

mile. Costs outlays include:

– Financing the purchase

– Car insurance payments

– Periodic service and repairs

– Registration and licensing fees

– Depreciation• In 5 years, cars only worth 60% of original value


• Purchasing an AutomobileIssues to consider are:

– Make and model of car

– Options you need vs. want

– New or used– Dealerships you wish to patronize


• Make and Model of CarMost consumers want a company with excellent

reputation for service and loyalty. Ask friends and family members who own models of cars you’re considering for their opinion of car’s performance and repair record.

Some makes, models depreciate more significantly than others; therefore, the cost of ownership is higher for certain models


• Make and Model of Car– Size consideration

• Small-sized cars -- better gas mileage, easy to park, handle well

• Medium-sized cars -- “family cars”, more powerful for automatic transmission and air, small enough for good gas mileage

• Large-sized cars -- increased safety, comfort, seating and trunk capacity

– Body Style -- Four-door models more popular with families with children


• New or Used Car?As new car prices climb, a used car is no longer a last resort in a car purchase.– Advantages

Less expensive to purchaseTend to depreciate less

– DisadvantagesSacrifice latest in comfort, performance, and safety

features

Not always certain the car has been maintained properly by the original owner


• Used Car PurchasesGenerally, most popular used cars have

following characteristics:1 Have been driven between 15,000 and 25,000

miles

2 Less than four years old

3 Models with established reputation for quality

Before purchasing, have a trained mechanic inspect the car. (Pre-purchase Inspection)


• Where To Buy a Used Car– Car Dealerships

• May charge more, but generally provide a warranty and can service car

– Private sales• Generally less expensive, but buyer must secure

own financing and transfer of ownership papers


• Buying a New CarTwo key prices to consider when buying new car:

1. INVOICE PRICE -- the car’s actual cost to dealer

2. STICKER PRICE (suggested retail price) -- price of car, including options and transportation charges, shown on manufacturer’s sticker on car window


• Negotiating the Price of a CarSmart negotiators work up from the invoice price

rather than down from the sticker price. Magazines like Consumer Reports and some buying services give invoice and sticker prices for different cars. There is usually a small fee.

Generally, paying between $300 and $500 over dealer invoice is a good deal for a well-stocked model.


• Negotiating the Price of a Car

– Extended service warranties– Fees for preparing paperwork (not

negotiable)– Dealer “paks” including rust proofing,

paint sealant, fabric protection (not worth the money you could save by doing on own)


• Two types of WarrantiesA warranty is a promise by maker to pay cost of repairing or replacing defective item during specific period of time

1. “Bumper to bumper” -- covers everything except tires for specified period2. “Power train warranty” -- covers only the engine and transmission for an additional period (usually two years) after bumper to bumper warranty expires


• Financing the Car PurchaseTo determine maximum car loan allowed, determine how much you may increase your monthly installment debt (not > than 20% of take-home pay).

Solve for present value of annuity (payment)


• Sources of Financing–Banks

–Credit unions• Offer most competitive rates for car loans• Often offer payroll deductions for monthly payments

–Automobile manufacturer’s financing subsidiary• Convenience of financing where car is purchased• Rates competitive


• LeasingIn recent years has become increasingly more

popular with new car shoppers–Nearly 25% of all new cars are leased, rather than

purchased–Advantages

• Little or no down payment• More car for the money• Lower monthly payments

–Main disadvantage -- the lessee does not own the car at the end of the leasing period.

chapter 7 transportation and major consumer decisions

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