Top Ten Car Buying Mistakes

May 18, 2010

Lots of people buy a new car, and then regret their purchase soon thereafter. If you don’t take a lot of precautions, you will be a car buying victim instead of a smart buyer. So, here are the top ten mistakes that buyers make when shopping for a new car. These mistakes are not listed in order of importance…but don’t miss the message in every mistake.

1. Impulse buying

An impulse is an emotion. The worst reason to buy a car is emotion. Car sales people are taught that they must try everything they can to sell you a car during your first visit. Statistically, they know that if they don’t, they won’t get a second chance. If you pull into a dealer lot to just “kick a few tires,” but you have not sworn to yourself that you will not buy on that visit, you’re doomed. Don’t say things like “I love this car” or “I’ve got to have this car.” Don’t get your emotions involved in this buying decision. If you’re talking too much, the car salesman will read that as buying signals. And salesmen are much better at clubbing you with your own buying signals than you are at resisting them.

Tons of people make impulse car purchases. You cannot do your research and wise shopping if you make an impulse buy.

2. Lack of research

Goes hand in hand with an impulse buy. You need to go online and research about cars, including:
a. safety
b. recalls
c. resale value
d. maintenance and repairs
e. range of car prices for the make and model you want

Research will give you the information you need to make an informed decision.

3. Unrealistic about your car needs – new vs. used.

Many car shoppers grossly overestimate their needs. Instead of buying a car that reflects their actual driving experience, they buy a vehicle that feeds their future plans or perceived future needs. For instance, a buyer who plans to own a boat and trailer may buy an SUV or heavy pickup. But he does not own the boat YET. Overall, it’s best to buy a vehicle for your present needs, not your future desires.

4. Not calculating the true cost of a hybrid

Hybrid vehicles, like the Prius, are priced far above a regular gas or diesel. When you subtract the cost of the regular vehicle from the hybrid price, you’ll see the premium you pay for the hybrid. Now, will the fuel savings pay for themselves over the number of months you own the vehicle? Hardly ever! Most times you’ll pay more overall for a hybrid vehicle. Gas and diesel vehicles are becoming more and more efficient. Remember, over 50% of the vehicles in all of Europe have diesel engines, and it’s been that way for 50 years. Must be a reason, eh?

5. Not shopping for car insurance before the car purchase

Here’s a big no-no. How many times have you called your insurance agent and gotten a quote on the car you WANT to buy? If you’re upgrading from an average car to a different kind of car…like going from a Toyota Altima to a Corvette…the increase in insurance premiums could make the new car purchase unaffordable. Unfortunately, most people find this out AFTER they buy that shiny new car. But just going from an older car to a new car could drastically increase your insurance costs. What if your old car didn’t have collision coverage, but your new car will? That could mean hundreds of dollars in added premiums.

6. Talking trade-in during negotiations for the new car purchase

Don’t include trade-in for your old car in the new car deal. It’s too easy for the car dealer to structure your deal to look like you’re getting much more for your trade-in. Make your car deal apart from any trade-in consideration. Then, get the trade-in offer and deduct it from the total. Also give serious consideration to selling your old car yourself. You’ll get much more money for your old car.

7. Dealer financing

This is a mine field, and the dealers have set the mines in your path. The most dangerous place in a dealership is the Finance and Insurance (F&I) office. The F&I office accounts for a big percentage of the total profits of a dealership. You must be wary of every offer here…financing, warranty, insurances like life insurance that pays off your loan balance. I recommend that you decline everything offered from an F&I office except a low interest rate on a loan of no more than 36 months.

8. Not buying at the end of the month and end of the year.

At the end of the month…any month…the salesmen and dealership are trying to maximize their bonuses and incomes. You’ll get your best deals if you buy in the last couple days of the month. The same goes for end-of-year purchases. Dealerships are desperately trying to get rid of last year’s models, and finish the year strongly. So, when’s the absolute best time to buy a car? The last couple of days in December of any year. You can hardly lose if you’re a smart buyer.

9. Leasing a car

Do you know why you see so many auto ads on TV that feature low lease payments? Because the car companies and dealers make a TON of money on a lease…far more then when they just sell a car. The lease agreement you sign is written totally in favor of the lease company. You never own the car, you only rent it for a number of months. You are responsible for maintenance and insuring the car. Plus, your lease limits you to a certain maximum number of miles driven. If you exceed the limits, the mileage penalties are staggering. I’ve looked at leases every time I’ve bought a car since the early 80s, and I’ve never once found a scenario in which I could come out ahead with a lease.

10. New vs. Used.

Most people do not need a brand new car. When you buy a new car, you get hammered on depreciation in the first year. Sometimes the value of your car drops as much as 20% the moment you drive your new ride off the dealer lot. The car lots are jammed with excellent used cars. You can save a bunch of money by buying a used car. But you won’t know that for sure unless you do some research. Compare the TOTAL cost of a new car versus the used car, including finance costs, maintenance and insurance. Most times, the used car will win…even when dealers offer zero percent car loans.

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Buying cars are some of the largest, most expensive purchases you’ll ever make. You might only buy one house in your lifetime, but you’ll likely buy many cars. Become a smart buyer and you’ll keep tens of thousands of dollars in your pocket.

© Copyright 2010, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

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Gulf Oil Spill Disaster: The Trigger of American Economic Collapse?

May 16, 2010

This article is written to analyze the potential economic fallout of the Gulf of Mexico oil rig explosion that occurred on April 20, 2010. I maintain that this incident could be the trigger of the American economic collapse. My expertise is in the insurance risk management and claims field. So, let’s look at what is going to happen as this disaster unfolds over time.

The oil drilling platform that burned and sank was drilling a well about 50 miles off the Louisiana coast. The derrick, the Deepwater Horizon, is owned by Transocean Ltd., and was leased to British Petroleum (BP). It was connected to the ocean floor by a “riser”…a 5,000 foot pipe that is now kinked like a garden hose. But the leaks are at the sea floor, not in the pipe. If BP, the lessee, cannot close the valve at the mile-deep wellhead, they may have to drill another well to relieve pressure. Some experts estimate that it could take two months to cap the well at the mile-deep ocean floor. And every day, somewhere between 1,000 and 5,000 BARRELS (200,000 to 1 million gallons) of crude oil float to the surface of the Gulf of Mexico.

The leading edge of the oil slick is about to make landfall at the Louisiana, Alabama and Mississippi coasts. But there exists the possibility that the oil spill may be caught by the Gulf Stream…the powerful, warm, and swift Atlantic Ocean current that originates in the Gulf of Mexico, exits through the Strait of Florida, and follows the eastern coastlines of the United States and Newfoundland before crossing the Atlantic Ocean.

And, we are just about to enter the Hurricane season, which extends from June 1st to November 30th. Any hurricane that enters the Gulf of Mexico will disperse the surface oil to parts unknown. There is no predicting which coastlines could be coated with crude oil. Any Gulf hurricane will impede and stall cleanup efforts as well as vastly expanding the geographic footprint of the spill. Cleanup cost could multiply exponentially.

So, we may be witnessing the humble beginnings of a disaster that could potentially affect the American coastline from Texas to Newfoundland.

Insurance Claims Issues

First Party Claims

There will be a flood of first-party claims, which are claims for direct loss or damage to covered property. But most Commercial Property insurance policies exclude pollution-related losses unless the loss was caused by a “specified cause of loss,” usually named in the policy…and usually confined to occurring on the insured premises.

Tens of thousands of claims will be filed under the Business Income and Extra Expense sections of commercial insurance policies. Untold number of businesses will be adversely affected by the oil spill, such as resort owners, commercial fishermen and shrimpers, coastal rental property owners, seafood wholesalers, most tourist-related business at the seashore, and charter fishermen.

But once again, BI and EE coverage requires direct physical loss to covered property. So, many businesses will be shocked to discover that even though they have Business Interruption insurance, it does not mean that they have a legitimate BI claim.

Even those policyholders that do have acceptable and covered BI claims may be limited in their monetary recovery by the policy language. The period of restoration usually does not include any increased period of time due to the enforcement of any ordinance or law that may require a policyholder to mitigate the effects of, or clean up the pollutants.

So most policyholders will be out of luck by filing claims with their own insurance companies. More on this later.

This denial of coverage will spell the bankruptcy and end of tens of thousands of coastal businesses. The ripple effect from those businesses to their customers and suppliers, as well as the families employed by all parties, will be catastrophic.

Third-Party Claims

Another huge consideration is the certainty of third-party claims. First-party insurers that pay claims related to the oil spill will subrogate (seek recovery) against those parties responsible and liable for the damages. Then consider all of the business that will file third-party claims directly against the parties responsible and liable for the damages. The list will continue to mount over the coming decade or longer. Timing will be crucial in this matter, since many of the responsible parties may have already exhausted their liability coverage and their corporate assets. Lawyers may find that many responsible parties will close their doors, effectively barring recovery.

Post-Katrina Insurance Industry Reality

In the wake of Hurricane Katrina, scores of insurance companies paid claims that they had originally denied. Sympathetic courts ordered them to pay claims that were arguably not covered. The same kinds of pressures will be brought to bear on ALL insurance companies in the aftermath of this oil spill disaster. In these kinds of widespread catastrophes, insurers will be required to pay claims that they may not owe simply because they CAN PAY. That takes some of the political pressure off of states and Washington.

Monstrous insurance loss payments can bankrupt insurance companies. But even worse are these politically-motivated claims for which the insurance company had not collected a premium. Do not be surprised to see many insurance companies fold in the wake of this ecological disaster if they are required to settle claims politically. And all insurance companies are backed up by reinsurance companies. The reinsurers will be hit with losses also, adding more ripples throughout the worldwide economy.

Lawsuits

In war, there is an old saying; “Kill them all…let God sort ‘em out.” That is kind of the philosophy of trial lawyers. In giant commercial enterprises such as BP, there will be dozens of entities that are involved…the parent company, subsidiary companies, contractors and suppliers. Trial lawyers customarily target the entities with the deepest pockets…plus everyone else. The lawsuits have already begun, and will name every business entity even remotely connected to the operation of the Deepwater Horizon oil platform. Every entity named in the lawsuits will be forced to defend itself.

And here’s where it gets even more complicated.

Many contracts between businesses and contractors contain a Hold Harmless clause that forces the contractor or vendor to absolve the business from liability, or at least to provide legal defense for the business. Common sense will tell you that subcontractors or vendors will have lower liability limits than the controlling entity, like BP. So lower liability limits will max out quickly.

The lawsuits will continue to be filed, and it will take years of legal wrangling to begin seeing damage awards meted out by all the various courts that will be involved.

Gigantic lawsuits and gigantic jury awards have the very real possibility of bankrupting the companies responsible for this oil spill.

Political Realities

Your Washington politicians have already passed legislation that protects their oil company buddies while exposing Americans to immense cleanup costs and business losses. A law passed in response to the 1989 Exxon Valdez spill in Alaska makes BP responsible for cleanup costs. But the law sets a $75 million limit on other kinds of non-cleanup damages. So, Federal law limits how much BP has to pay for damages such as lost wages and economic suffering in the Gulf Coast oil spill, despite President Barack Obama’s assurances that taxpayers will not be on the hook.

But the hue and cry from the Gulf Coast will be so great that Washington will feel entirely compelled to swoop in and start writing checks. The Hurricane Katrina/Rita debacle of 2005 is a scab on Washington’s skin that they don’t want torn off. And no Congressman is going to take a position against helping the poor Gulf fishermen and the rest of the populace that makes their living from Gulf and gulf-shore businesses. And despite Obama’s assurances, there is no way that he would refuse to sign a disaster relief law.

All of that means that the Federal Government will print more paper money and go deeper in debt. But printing paper money will hasten hyperinflation. And in order for Washington to go deeper in debt, foreign nations must by American debt securities. Eventually, foreign nations will cease cutting their own throats and say no to Washington.

Tens of thousands of Gulf Coast businesses will cease operations in the months to come. Banks that hold loans and mortgages on those businesses…as well as the loans and mortgages of the employees now thrown out of work…will suffer financial losses. Hundreds of thousands of coastal residences will be unemployed. Cars will be repossessed. Home foreclosures will escalate. Credit card companies will hold uncollectible accounts. Even the local Dairy Queen could suffer economic losses when the surrounding coastal community’s economy collapses.

And we haven’t even left the Gulf of Mexico yet. If the Gulf Stream moves the oil up the Eastern Seaboard, multiply all these predictions by an X factor.

Conclusion

As you see, the economic impact of the oil spill will reach around the world. Companies in the UK will be affected. Likely some insurers at Lloyd’s of London are involved. Reinsurance companies will take hits, which might affect companies in Germany, Switzerland, France and Bermuda. Domestic insurers will likely pay claims due to political pressure. Banks will suffer losses. Businesses will close. Unemployment will spike. Most importantly, it will place crushing pressure on Washington to fix the problem with money…and Washington withstands pressure like a Dixie cup under an elephant’s foot.

Therefore, I submit to you that the April 20th Gulf of Mexico oil disaster could very likely be the trigger of the collapse of the American economy.

© Copyright 2010, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.