CHAPTER 2: BUYING AN AUTOMOBILE Buying an Automobile Activity Objective Upon completion of this activity, you will be able to differentiate between MSRP, dealer invoice, and dealer cost. Tools Computer with Internet access, calculator (or use the calculator on the computer) Supplies None Cautions None Procedure Check off when completed. If you have any questions during the duration of this activity, stop and ask the instructor (if available) for assistance. Log onto your computer and open up an Internet browser. Type in the following Internet address - www.kbb.com. Click on New Car Pricing. Follow the instructions on the website to price out a car of your choice. Note the manufacturer, make, model, and year. Identify the dealer invoice. Identify the MSRP (manufacturer’s suggested retail price). Click on Incentives to identify if any rebates or incentives are being issued at the present time. Subtract that amount from dealer invoice. Calculate the estimated dealer cost by subtracting another 3% (holdback) to represent the incentive a dealership may receive from the manufacturer to sell the vehicle. This number represents the estimated Dealer Cost. Calculate a reasonable offer (1.04 x Dealer Cost) for the vehicle. Calculate your cost for the vehicle by including your state’s sale tax. Calculate your 20% down payment. Use a search engine (e.g., www.google.com) to find an online loan calculator (keyword: loan calculator). Calculate your monthly payment on the remaining balance if you financed the loan for 48 months at the current average interest rate. Log off your computer.
Activity Journal
1. 2. 3. 4. 5.
What factors caused you to choose the specific type of car that you researched? How does a monthly payment change by increasing the loan duration? How does a monthly payment change by increasing the interest rate? What is the current bank interest rate for new automobiles? Does the manufacturer offer low interest rate incentives? How can automotive retailers sell vehicles under dealer invoice?