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					Transportation
 Going Mobile
         ISBE Objectives
After studying this unit
students will be able to:
Identify alternative means of
transportation;
Determine the relative
advantages of each;
Determine the need for
transportation based on usage
patterns, operating costs,
maintenance costs and
storage fees;
Recognize the importance of counting a
person‟s time, safety and comfort as costs
of alternative transportation modes;
Recognize that a large portion of income is
used for the purchase and use of an
automobile;
Recognize the care needed in the efficient
and economic operation of an automobile;
Understand how to evaluate different
modes of transportation with regards to
financing, insurance, safety, convenience,
maintenance, and energy use;
Be aware of the various social costs of
transportation, i.e., pollution, depletion of
resources and congestion;
Understand that as much care should be
taken in shopping for automobile financing
as is taken in shopping for the car itself.
Transportation Systems



 Provide freedom in regard to living,
 working and shopping,
 Increase economic activity and
 Provide for efficient distribution of
 goods and services.
  System Interdependence
Competition between
The network of highways, streets
and alleys
– Railroads
– Subways and
– Airlines
Policies that favor one might hurt
others, e.g., free streets,
subsidies to others.
 Transportation Needs
Travel to
– School
– Shopping
– Work
– Recreation
Related to financial resources
Physical limitations
Time availability
Travel type vs. availability
Travel Advantages/Disadvantages
  Rail advantages
  – Leave the driving to us
  – Beautiful scenery without billboards
  – Few stops on long distance trips
  – Sleeping quarters
  Rail disadvantages
  – High cost
  – Schedule
  – Can‟t stop for closer inspection
Bus advantages
– Leave the driving to us
– Low price
Bus disadvantages
– Schedule
– Traffic concerns
– Seedy riders
– Frequent stops
Air advantages
– Speed
– Safety
Air disadvantage
– Schedule
– Airport locations
– Cabin air
Mass transit advantages
– Price
– Leave the driving to us
Mass transit disadvantages
– Schedules
– Travel companions
– Distance to access
– Frequent stops
– Traffic?
Walking
– Exercise
– Door to door transportation
– No parking
– No schedule
Walking Disadvantages
– Travel time
– Weather?
Bicycling Advantages
– Exercise
– Door to door transportation
– Low/no cost parking
– No schedule
Bicycling Disadvantages
– Travel time
– Weather?
Car Advantages
– Relatively efficient schedule
– Relatively convenient parking?
Car Disadvantages
   Traffic
   Cost?
   Safety?
     Transportation Costs
Explicit costs
Fixed costs
– Depreciation
– Lost interest on capital invested
Variable costs
– Gas
– Maintenance
– Repairs
Implicit costs
– Social costs
– Subsidies
Non-economic Selection Factors
Scheduling freedom
Flexibility
Availability
Convenience
Service
Value of time
Reliability
Comfort
Style
Status
Safety
Privacy
       Auto Aquisition
There are hundreds of new
Cars
Trucks
Vans and
SUVs
every year
That new „vette you‟d love to have
probably
costs more than you can afford
only carries two passengers
only carries minimal luggage
guzzles gas
is expensive to maintain and
is out f the world to insure
    When “ride” shopping
Consider
Typical number of passengers
Other items to be transported
Where you will drive
Climate where you will drive
How much will you drive
Ease of maintenance
            Options?
AM/FM radio or satellite
Side air bags
On Star
Smooth ride/steering
Multi-changer CD player
DVD player
      Can you afford it?

Buy or lease
Cash or finance
Insurance
Maintenance and repair
 Where to look for new cars


New car dealerships
Buying services
The Internet
     New car dealers can
Special order American cars
Search other dealer‟s inventory
Negotiate prices
Usually offer one of the Big Three and
one or more import
     Tell Buying Services
The make
Model and
Options you want and they will
Buy @ a rock bottom price
Deliver it to a dealer near you
Buying Services also provide
Financing
Leasing
Extended service contracts and
Dozens of Internet sites provide
services to buying services, but
you make the deal
    Evaluating a New Car
Does it have the options you want?
Special order
Buy off lot – better deal
or let dealer locate
Ensure satisfactory handling,
driving,
parking (size)
          The Sticker
Each new car sticker must include
fuel economy guides for highway and
city driving, plus an estimate for
annual fuel cost based on a
specified number of miles
Don‟t pay for what you don‟t want
Roof rack
Cow catcher
Spinners
AWD
  Consider Operating Costs
Gas
Tires
Insurance
Maintenance
Repairs
Check out car magazines
Car and Driver
Road and Track, etc.
 Where to look for used cars
New car dealerships
Used car dealerships
Newspaper want adds
Friends and family
Auctions
Fleet discounts
Internet
Buying a Used Vehicle: Questions to ask
Where did it come from
New car dealerships - trade-ins
Used car dealerships – trade ins
Bought from individuals
Rental companies
Company fleets
Taxicab companies
Rebuilt wrecks

Learn the car‟s history via
Carfax.com by inserting VIN
number from front left dashboard.
How is the Economy Doing?
Use any source you want to,
newspaper, TV, radio, parents, the
internet, etc., in coming up with an
answer tomorrow.
Multiple Choice – We are in…
– Recovery
– Prosperity
– Recession
– depression
  Evaluating Used Vehicles
Late models may have
manufacturer‟s/dealer‟s warantee.
Usually sold “As is” (WYSIWYG).
You‟re responsible for all repairs.
Evaluate in daylight so bright light
won‟t hide defects.
Get a mechanic‟s check and tell the
owner you‟re going to do it.
Check for rust.
Check for body repairs.
Look around the trunk lid and doors
to see if the car has been painted.
Check out the tires to see if they‟ll
need to be replaced soon (Lincoln).
Check the shocks by pushing down on
each fender – cars should settle down
quickly an not keep bouncing.
Open and close all windows, doors and
trunk.
Look at the condition of the interior to
see how well the car has been
maintained.
Make sure it has a good spare and jack.
Drive it on different kinds of roads and
speeds to see how it rides, handles
and sounds with the sound system off.
Test brakes to ensure they are quiet
and stop the car smoothly.
Test all gears, including reverse.
Check all electrical devices:
Turn signals
Headlights, including brights
Radio
Air Heat
Power windows and seats
Cruise
Windshield wipers and washer
Get an odometer statement and
talk to the previous owner
Inspect the title
If it has a salvage title, don‟t buy it
(totaled by insurance companies
and repaired by someone…anyone)
           Negotiating
Begins with the Manufacturer’s
Suggested Retail Price (MSRP).
Determine the true dealer cost
Copy all info from the window sticker
Use a buyer’s guide to find the
actual dealer‟s cost of base vehicle
and each option.
Total the dealer costs to determine
dealer‟s invoice price.
Find the dealer‟s holdback in the
buyer‟s guide.
Subtract the holdback from the
dealer invoice price along with
rebates and dealer incentives.
Add the destination charges to get
the true dealer cost.
Add 5% to the dealer invoice for fair
profit and expect non-negotiable
advertising fees of 1-3% of the sticker
price to be added to the total.
If you have a trade-in, use a buyer‟s
guide to find its wholesale value and
try not to accept that it is less
than 5% below that wholesale value.
Clean it thoroughly.
Make sure it is in good working condition
Put all paperwork in the glove box
– Title
– Registration
Subtract the trade-in value of your
vehicle from the price you‟ve
determined in steps 1 and 2 then add:
Dealer prep charges
Documentation fees
Sales tax
License and title fees to reach total cost
     Avoid Dealer Extras
Rustproofing
Undercoating
Protection packages
Dealer added options
Extended warranties or service
contracts
Dealers charge substantial markups
for these unnecessary items
      Buying a Used Car
Use a buyer‟s guide like:
Edmunds
Pace
NADA Blue Books
To determine the value of a vehicle
they‟ll give an average trade in and
retail value as well as
mileage adjustments
Inspect vehicles as indicated before
After inspection, decrease the book
value of the vehicle based on its
condition.
If you have a trade-in, use a buyer‟s
guide to find the wholesale value
of your trade-in and try not to accept
the value that is less than 5% below
the wholesale value
Clean it thoroughly
Make sure it‟s in good operating
condition
Put all paperwork in the glove box
– Title
– Registration
Subtract the trade-in value of your
vehicle from the price you
determined in steps 1-3.
         Paying Cash
Your cost will include the
Negotiated price
Minus the trade-in value
Minus the down-payment
Plus sales tax on one or more of the
following:
Documentation fee
Destination charge
Preparation charge
License and title
Credit Insurance (ok if you choose it)
Dealer charges (avoid)
In reality, most people can‟t afford to
pay cash so it becomes a matter of
how much you can afford to pay each
month.
      Where to Finance
The dealer
Commercial Banks
Savings and Loans
Credit Unions
Finance Corporations
The dealers can usually offer you
financing through the manufacturer‟s
credit subsidiary.
One advantage of dealer financing is
often very low interest rates i.e.,
0-1.9% financing (dealer) vs
8-9% through financial institutions
             Example
Example of $10,522.69 borrowed at
1.9% / 3 years = $301.79 / mo.
                    x 36
              $10,864.44 amt. paid
             -$10,522.69 amt. financed
                $311.75 interest paid
Example of $10,522.69 borrowed at 9% /
3 years = $301.79 / mo.
                     x 36
              $12,048.72 amt. paid
             -$10,522.69 amt. financed
              $1,526.03 interest paid
                  311.75 @ 1.9%
              $1,214.28 = difference
Where is the easiest place to get a loan
from?
The financial institution where you do the
rest of your banking. If your
income isn‟t sufficient, they may still
grant you a loan if you obtain a
co-signer who guarantees repayment if
you default.
The interest rate you‟ll be charged
will be based on the current
market rate of interest which is
influenced by the government
organization called the
Federal Reserve or the Fed.
Finance companies are the lenders of
last resort for those who can‟t borrow
anywhere else. They make loans for
used vehicles and their interest rates
will be 2-3 times
higher than other financial institutions.
To borrow money, you‟ll be asked to
sign a contract which will show
what obligations you and the lender
have including the Truth-In-Lending
Disclosure Statement which we
discussed in the chapter on credit.
If you‟re financing with a dealer, the
contract will also include an
Itemization of Amount Financed
which details the terms of the sale:
Cash Price
Trade-in-value
Cash Down Payment
Rebates
Sales Tax
License and Title Fee
Credit Insurance Premiums
Documentation and other fees
Amount Financed

Calculate Finance Charges by looking
at and comparing APRs.
            Leasing
Advantages
You can spend more time driving a
new car
You have lower monthly payments
on depreciation
Disadvantages
Substantial down payment
You own nothing
You‟ll always have a car payment
Use limitations
12,000-15,000 miles per year
Modifications result in big fines
Excessive wear and tear charges
Early termination fees
       Closed-end Lease
Only kind of lease you want
Value of the vehicle at the end of lease is
established in advance
Any fees are spelled out in advance
At the end of the lease you
Pay any predetermined lease end fee or
charges and walk away from it or
Buy the car for its predetermined value
Sell the vehicle yourself and keep the profit
Same as above, but make a good deal on
another vehicle
            Insurance
Be sure to check before you buy.
Why?

Premiums can be as low as a few
hundred dollars/year or as high as
several thousand/year.
  The Purpose of Insurance
Protect you from unforeseen financial
loss related to your vehicle including:
Medical expenses for anyone involved;
Damage to your vehicle due to
– Accident
– Vandalism
– Act of God
    Insurance also covers
Vehicle theft
Compensation to others for
– Medical expenses
– Loss of income
– Pain and suffering
– Permanent injury
When you are at fault
              Also
Compensation to other people for
damage to their
property when you‟re at
fault in an accident.
You buy a policy which is a contract
between you and the company which
specifies:
The coverages you‟re purchasing
Conditions under which you‟re covered
The premium you‟re paying
     Insurance Coverages
Bodily Liability Injury – covers injury
to others when you are at fault and
provides legal defense and
payment of damages up to the
limit of liability purchased including
Medical expenses
Loss of income
Pain and suffering and
Permanent injury
      Insurance Required
Most states require a minimum
amount of
liability insurance before you can
register your car to protect others
against your
negligence.
Young and unsafe drivers will be
placed in an assigned risk insurance
pool and be assigned an insurance
company with a premium that will be
very
high.
Collision covers damages to the
policyholder‟s car as the result of a
collision with another car or object or if
the car turns over. Payment is made no
matter who is at fault. Coverage includes
a deductible which requires the policy
holder to assume a portion of the cost of
the damage. Common deductibles are
$100, $250, and $500.
An insurance company has the
option of either paying the cost of
the repairs less the deductible or
the actual cash value of the vehicle,
so…
It may not be economical to buy
collision insurance coverage if the
value of the car is
low
Coverage is available which will
replace the vehicle rather than paying
the actual cash value for a substantially
higher premium.
       Medical Payments
Covers the reasonable medical
expenses of the policyholder and
their family if:
They‟re injured while riding in
their vehicle
They‟re injured while riding in
someone else’s vehicle
If they‟re struck by a vehicle while
walking or bicycling
No matter who‟s at fault.
  Personal Injury Protection
Is mandatory in states with no-fault
insurance and provides a broader
form of medical coverage, including
funeral costs, loss of income, and
cost of in-home assistance
regardless of who‟s at fault.
Uninsured and underinsured motorist
(bodily injury) insurance covers
reasonable medical expenses of
policyholder and
family if injured by a hit and run
driver, uninsured driver by
underinsured driver while in their
car, bicycling or
walking.
Glass breakage – covers deductible
when cracked glass is replaced.
Rental reimbursement – while car is
being fixed after an accident.
Towing insurance – after a
breakdown or accident
Uninsured/underinsured motorist
property damage insurance to property
caused by an uninsured/underinsured
motorist.
Factors Influencing Premiums
Age
Driving records
Type of vehicle
Where you drive
When you drive
Coverages you buy
Deductibles you want
      Premium Discounts
Auto/Homeowner‟s discount if
both policies are carried with the
same company.
Multi-car discount
Good driver discount
Passive restraint discount – air bags
Driver Education discount
Car pool discount
Good student discount
Shop around for insurance, but get
good service.
     Operating Expenses
 When gasoline cost $1.28 in the
 USA, how much do you think it cost
 in:
Argentina          Germany
$3.04              $4.32
Canada             Japan
$1.80              $3.77
England            Norway
$3.47              $5.05
              Tires
A good all-season tire for a
subcompact might cost $60-70 while a
high performance tire for a sports car
may cost you $175 or more.
How far and how you drive will impact
how frequently you have to buy tires.
     Maintain Your Tires
Check tire pressure monthly
Check tire treads for uneven wear and
tread depth
Rotate tires every 6,000 miles
Drive smoothly
Avoid hazards like potholes.
Follow periodic maintenance schedule.
How do you know what it is?
Avoid extended warranties as they are
not recommended by
consumer experts.

Change the oil every 3,000 miles.
        Monthly Checks
Oil level – when you gas up
Radiator coolant – when you gas up
Transmission fluid
Power steering fluid
Brake fluid
Air filter
Keep it washed, waxed and
vacuumed.
             Repairs

Buy a car that can be maintained and
repaired not only locally, but
everywhere you anticipate
traveling.
Find a mechanic who‟s reliable, does
good work at a reasonable price,
through word of mouth. The shop
should be clean, well kept and have
modern equipment.
          Credentials
Look for credentials such as
American Automotive Association
(AAA) National Institute of
Automotive Service Excellence
(ASE).
         Repair Steps
Document the exact symptoms of
the problem when it happens.
Make sure mechanic calls and
explains the problem and cost
before starting repairs.
Ask to see the old part.
Be prepared to get a second opinion
if you don‟t like the explanation.
Beware of scams.
            Just in Case
Carry a cell phone or OnStar
Learn how to change your tires
Make sure you spare is good when
your tires are rotated.
Carry jumper cables
      triangle reflectors or flares
      a plastic bottle in case you overheat
      an empty container for gas
             Tool Kit
Don‟t leave home without it
Hammer
Pliers
Flat and Philips head screw driver
Crescent wrench
Wire coat hanger
Duct tape
Flash light
               11-30-05 Headlines
Consumer Confidence Up As Gas Prices Fall
(BREITBART.COM - Consumer Confidence Up As Gas Prices Fall)

Sales of New Homes Setting Record
(http://www.nytimes.com/2005/11/29/business/29cnd-
econ.html?ei=5065&en=cc6de7a6bcd8d048&ex=1133931600&adxnnl=1&partner=

MYWAY&adxnnlx=1133319896-xeBG9cMSHDGgSzVw6VqhTA&pagewanted=print)

Sales Climb at Retailers on Internet
(http://www.nytimes.com/2005/11/30/technology/30cyber.html?ei=5065&en=582
2c59226d4d728&ex=1133931600&partner=MYWAY&pagewanted=print)
      More Recent News
Business inventories fell at a $13.4
billion annual rate.
What does this mean?
the durable goods report showed an
increase in sales of business
equipment
Non-farm payrolls grew by 215,000
last month
      More Economic News
low inflation (2.5%),
strong productivity (due to educated employees),
lower gasoline prices ($2.11),
a record setting housing market,
increases in consumer confidence (Consumer
spending, which accounts for about 70 percent of
the economy, expanded at a 4.2 percent annual
pace.
The gain in consumer spending was paced by
auto sales in July, which rose at the second-
fastest pace on record)
and business capital investment (highest since the
boom in 1985)
What‟s a key indicator of which phase
of the business cycle we are in?
Unemployment
the unemployment rate is 5% that's
lower than the average for the
1970s,
1980s and
1990s.
5% unemployment has traditionally
been considered full employment.
What is the Fed going to do
with interest rates the next time
it meets?
–Keep interest rates the same?
–Lower interest rates?
–Raise interest rates?
Reports yesterday showing higher
consumer confidence,
new home sales and
durable goods orders
supported forecasts that central
bankers will keep
raising interest rates to ensure
inflation doesn't accelerate.
During 2004 when attacks on the
economy were in full force,
36% of Americans thought we were
in recession. Now, one year later,
even though unemployment has
fallen from 5-1/2 to 5% and real
GDP has expanded by 3.7% the
number who think a recession is
underway has climbed to 43%.
Why do you think that is?
"No matter what maps, no matter what
data are presented, no matter which way
markets move, a pall of pessimism hangs
over the economy. It's amazing. When
bond yields rise, it's considered bad to
the
housing market and the computer
industry, but if bond yields fall and the
yield curve narrows toward inversion,
that's bad, too, because an inverted yield
curve could signal a recession. If
housing data weaken as they did on
Monday when existing home sales fell,
well, that's a sign of a
bursting housing bubble.
"If housing data strengthen as they
did on Tuesday when new homes
rose, well, that's negative because
the fed may raise rates further. If
foreigners buy our bonds, we're not
saving enough ourselves. If
foreigners don't buy our bonds
interest rates could rise. If wages
go up, inflation is coming. If wages
go down, the economy is in trouble.
The economic boom is going to
require an increase in the use of
petroleum products which could drive
the cost of heating oil in the
northeast up.
This onslaught of negative thinking is
clearly having an impact.
Count every "F" in the following text:

FINISHED FILES ARE THE RESULT OF
YEARS OF SCIENTIFIC STUDY
COMBINED WITH THE EXPERIENCE
OF YEARS

				
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