Personal & Family Finance

Consumer Durables

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What do you think Consumer Durables are?
What are the ways to purchase Consumer
Durables?
Have any of you used EBay (or other on-
line auctions)?
What are your experiences?

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 Consumer Durables
 Items that provide benefits for a period of time of at
least a year.
 Examples: automobiles, household furnishings, and
appliances.
 Expenditures for these items typically represent about
10% of annual expenses.
 This does not include the cost of maintenance and upkeep.
 This represents multiple items on the budget.
 Net replacement cost is defined as replacement cost
less trade-in value.
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 Consumer Savvy
 Consumers should gather information regarding the
cost and dependability of the item.
 Consumer Reports, Consumer Research, and
various sites on the Internet may provide valuable
information on the item and manufacturer.
 If you are buying on the Internet, make sure the
retailer is reliable as the growth of the Internet has
also sparked an increase in Internet fraud.
 There are reputable sites that rate retailers.

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 Mail Order Merchandise Rule
 Issued by the Federal Trade Commission (FTC) to
cover catalog and telephone sales but it has been
applied to electronic sales (Internet and fax).
 Unless stated otherwise, the 30-day rule applies.
 The retailer must ship the item in 30 days or obtain your
consent if the shipment will be delayed.
 The retailer must refund your money if the item is not
shipped in 30 days and they do not have your consent.
 Follow the FTC’s rule for paying safe.

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 Online Auctions and Electronic
Payments
 Types:
 “person-to-person”
 “business-to-business”
 According to Internet Fraud Watch, 89% of the
Internet-related fraud complaints were due to online
auctions.
 80% of these complaints related to money orders & checks.
 6% related to the use of credit cards.
 10% received damaged items or never received the item.
 To protect buyers, auction payments are increasingly
being completed through financial intermediaries.
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 Warranties
 Represent the seller’s assumption of responsibility for
the quality, character, or suitability of the goods sold.
 Implied
 Protection under the law when no express warranty is made
 If product is sold “As is” the seller has no responsibilities.
 Express warranty
 Oral or written agreement concerning the character or
performance of the good
 Don’t confuse persuasive sales talk (puffery) with an
express warranty. Understand fact versus fiction.
 Puffery is not legally binding in most cases.

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 Warranties (Continued)
 Full warranty:
 The consumer is entitled to “full” remedy for a specified
time period.
 No charge for labor, parts, or related transportation costs
 Includes lemon protection
 Limited warranty:
 Any warranty that does not meet the standards of a full
warranty
 Extended warranty:
 Purchased for a fee to extend the original warranty

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 Selecting an Automobile
 Several choices that consumers must make when
selecting an auto.
 Purchase or lease.
 New or used car.
 Type of car chosen will also have an impact on the cost of
the car insurance.
 The car market is one where price haggling is still
involved so the best informed consumer will
generally get the best deal.

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 New Cars
 New cars must show the Monroney sticker price,
which includes the following:
 The base price. This is the cost of the car without options,
but includes standard equipment and factory warranty
 The manufacturer’s installed options with the
manufacturer’s suggested retail price
 The transportation charge
 The fuel economy
 The dealer sticker price will include the extras added
by the dealer.
 The invoice price is the price charged to the dealer by
the manufacturer. It is crucial to know this number!
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 Used Cars
 Your best buy is typically a two- to three-year old
used car because the greatest amount of price
depreciation occurs in the first couple of years.
 Investigate through Consumer Reports and other
sources the reliability and repair record of the car.
 You should also investigate the recommended price
of used cars by reading the Kelley Blue Book Used
Car Guide or other reliable sources.
 You should also know whether the car is still
covered by the manufacturer’s warranty.
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Rebates and Dealer-Supplied Financing
 Negotiating the price of a car includes the decision
whether to accept a rebate or low-interest financing.
 Consumers should be aware that rebates and low-
interest financing can be advertising gimmicks.
 Avoid loans with credit life insurance if possible.
 Consider using a home equity loan to finance the car
because the interest will be tax deductible (assuming
you meet certain criteria).
 You must, however, be disciplined about repaying this loan
because your house is pledged as collateral on the loan.
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 THE COSTS OF OWNING AND
OPERATING AN AUTOMOBILE
 The costs of ownership and operation of an
automobile includes:
 Operating expenses (fuel, oil, maintenance, tires, etc.)
 Depreciation
 Insurance
 License, registration, & title
 Finance charges
 Consumers should research the total cost of each car
that they are considering purchasing/leasing.
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 The Leasing Alternative

 A lease agreement is basically an agreement to rent a

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 The Leasing Alternative (Continued)
 Leases are regulated by the Consumer Leasing Act
of 1977.
 The Federal Reserve Bank has established common
disclosure requirements on consumer leases.
 There are two types of leasing contracts:
1. The closed-end lease: You are not responsible for the
value of the car at the end of the lease.
2. The open-end lease: There may be an end of the lease
payment if the appraised value is less than the residual
value. This will not be known until the end of the lease.
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 The Lease/Buy Comparison
 Examine all costs for both the purchase and lease
decision. Compare the costs of each choice.
 The relevant costs that should be included are:
 Up-front sales costs
 Financing costs
 The implicit cost of your own funds
 Depreciation and return charges
 Yahoo Finance Center website

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 What If You Bought a Lemon?
 Make sure that you keep good records of any service.
 This will serve you if you have problems with the car.
 It will also be a good selling point if you try to sell your
car in the future.
 If you find that the car has any problems, then you
should discuss the problems with:
 The dealer and try to resolve them at this level.
 Contact the manufacturer if the dealer can’t fix the
problem.
 There are also alternative dispute resolutions.
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 Alternative Dispute Resolution
 Some of the big automobile manufacturers have their
own dispute resolution programs.
 Most also cooperate with the Better Business
Bureau’s (BBB) Autoline program.
 Arbitration is another method for resolving disputes.
An impartial third party suggests a binding or
nonbinding remedy.
 Arbitration is cheaper than the court system.
 It is also quicker than the court system.

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 Dispute resolution (cont.)
 Mediation
 Arbitration

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