YOU AREN’T WHAT YOU DRIVE
THEY BELIEVE THAT FINANCIAL INDEPENDENCE IS MORE IMPORTANT THAN DISPLAYING HIGH SOCIAL STATUS.
Mz. W. W. Allan is a self-made multimillionaire. He and his wife have lived in the same three-bedroom house in the same middle-class neighborhood for nearly forty years. Mr. Allan owns and manages two manufacturing businesses in the Midwest. During his entire married life, he has owned only full-sized General Motors sedans. He will tell you that he never burdened himself with status vehicles or products of any kind. Mr. Allan’s businesses, as well as his household, are highly efficient operations. The productivity of his businesses, coupled with his household’s moderate consumption habits, produced many surplus dollars. These, in turn, were reinvested in his businesses, commercial real estate, and the common stocks of a variety of high-quality American corporations. Mr. Allan is what we call a super-PAW. His net worth exceeds the expected value for people in his income/age category by more than tenfold!
During the course of his career, Mr. Allan has helped many other entrepreneurs. He has acted as a mentor to dozens of business owners and has saved many businesses from going under by giving financial assistance to struggling entrepreneurs. But he never extended credit to people who exhibited the big-hat-no-cattle philosophy. In his mind, such people would never be able to repay their debts. These types, according to Mr. Allan, “spend, spend, spend, in anticipation of having money before they even earn it.”
Mr. Allan, as well as those people whom he has backed financially, have never felt that their purpose in life was to look wealthy. According to Mr. Allan, “That’s why I’m financially independent”:
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If your goal is to become financially secure, you’ll likely attain it.... But if your motive is to make money to spend money on the good life, ... you’re never gonna make it.
Many people who never achieve financial independence have a much different set of beliefs. When we ask them about their motives, they speak in terms of work and career. But ask them why they work so hard, why they selected the careers they did, and their answers are much different from Mr. Allan’s. They are UAWSs, and UAWS, especially high-income producers, work to spend, not to achieve or become financially independent. UAWs view life as a series of trade-ups from one level of luxury to the next.
So who enjoys working? Who really gets satisfaction from their careers, PAWs or UAWs? In most of the cases we have examined, PAWs love working, while a large proportion of UAWs work because they need to support their conspicuous consumption habit. Such people and their motives offend Mr. Allan. He stated numerous times:
Money should never change one’s values.... Making money is only a report card. It’s a way to tell how you’re doing.
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NO ROLLS-ROYCE, PLEASE
Mr. Allan is extremely perceptive in his understanding of under accumulators of wealth (UAW). In essence, he feels that products change people. If you acquire one status product, you will likely have to purchase others to fill up the socially conspicuous puzzle. Before long, your entire lifestyle will have changed. Mr. Allan clearly understands the complementary nature of status products and a high-consumption lifestyle. He will have none of these artifacts. They are a threat, as he sees it, to his rather simple yet highly efficient lifestyle:
Building wealth is not something that will change your lifestyle. Even at this stage of life, I don’t want to change the way I live.
Mr. Allan’s values and priorities were recently tested. Several of those people whom Mr. Allan helped stay in business decided to purchase a special birthday gift for him. What a nice gesture, they thought. But status gifts, whether from friends or rich parents, are not always congruent with the recipient’s values and lifestyle. And often such gifts place tremendous pressure on the recipients to spend more and more of their income to “fill in the picture.”
Some wealthy parents buy their adult children homes in affluent neighborhoods. Great idea? Perhaps they should realize that “affluent neighborhoods” are high-consumption neighborhoods. From property taxes to the pressure to decorate, from the perceived need to send their children to expensive private schools to the $40,000 four-wheel-drive luxury Suburban, the children are now on the earn-to-spend treadmill. Thanks, Mom and Dad!
As Mr. Allan, the super-PAW, told us:
Something interesting recently happened. I discovered I was to be given a surprise present [from several close business associates]. A Rolls-Royce for a present! It was ordered for me ... special color, special interior.... [They] ordered it about four months before [I found out about it].... Still had about five months [before delivery].
How do you go ... and tell somebody who [wants to] give you a
Rolls-Royce that you don’t want it?
Why did Mr. Allan refuse to accept such a marvelous gift?
There’s nothing the Rolls-Royce represents that’s important in my life. Nor would I want to have to change my life to go along with [owning] the Rolls. I can’t throw fish in the back seat of the Rolls, like I do right now when I go fishing. I’m gonna have to get you all to the lake.... I’m out fishing here every weekend. We have some of the best freshwater fishing in the country. Right out here ... where I keep my fishing boat.
Mr. Allan’s type of fishing includes throwing bloody fish in the back seat of his four-year-old, full-sized, American-made, nonluxury vehicle. But such behavior is incongruent with driving a Rolls-Royce down to the lake. It would be out of place. Mr. Allan would not feel comfortable with such a vehicle. Thus, he contended, he had to change his behavior by ceasing to fish or refuse the gift.
Let’s consider Mr. Allan’s dilemma further. His office is located in his manufacturing plant, which is in an old industrial area. An automobile like the one being offered might well be out of place in such an environment. And, of course, Mr. Allan does not want to operate two vehicles. That would be inefficient. Mr. Allan also feels that a luxury car would alienate many of his workers. They might get the feeling that their boss was exploiting them. How else could he afford such an expensive vehicle? There are other considerations as well:
With a Rolls, I can’t go to some of the crummy restaurants I enjoy going to.... Can't drive up in a Rolls-Royce. So, no, thank you. And so I had to call and say, “I really got to tell you something. That I don’t want it.” It’s totally unimportant.... There are some things that are more fun to do ... more interesting to do [than owning a Rolls].
Mr. Allan recognizes that many status artifacts can be a burden, if not an impediment, to becoming financially independent. Life has its own burdens. Why add excess baggage?
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BUYING CARS, MILLIONAIRE STYLE
How do millionaires go about acquiring motor vehicles?* About 81 percent purchase their vehicles. The balance lease. Only 23.5 percent of millionaires own new cars (see Table 4-1). Most have not purchased a car in the last two years. In fact, 25.2 percent have not purchased a motor vehicle in four or more years.
How much do millionaires pay for these vehicles? The typical millionaire (those in the 50th percentile) paid $24,800 for his most recent acquisition (see Table 4-2). Note that 30 percent spent $19,500 or less.
Also note that the average American buyer of a new motor vehicle paid more than $21,000 for his most recent acquisition. This is not much less than the $24,800 paid by millionaires! Moreover, not all of these millionaires purchased new vehicles. How many indicated that their most recent vehicle was used? Nearly 37 percent. In addition, many millionaires indicated that they traded down recently—that is, purchased lower-priced vehicles than they had before.
What is the most that these millionaires ever paid for their motor vehicles? Fifty percent of the millionaires we surveyed never spent more than $29,000 in their entire lives for a motor vehicle. About one in five, or 20 percent, never spent more than $19,950. Eighty percent paid $41,300 or less to acquire their most expensive motor vehicle.
What if we separate out from our sample those millionaires who told us they had inherited their wealth—nearly 14 percent of the millionaires in our sample? The typical wealth inheritor spent in excess of $36,000 for his most expensive motor vehicle. In sharp contrast, the typical self-made millionaire paid much less —approximately $27,000, or almost $9,000 less than millionaires who inherited their wealth. Thus, the typical American buyer of a new motor vehicle today spends about 78 percent of what the typical self-made millionaire does for his most expensive motor vehicle.
TABLE 4-1 MOTOR VEHICLES OF MILLIONAIRES: MODEL-YEAR
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LATEST MODEL-YEAR OF VEHICLE OWNED¹ : PERCENT OF MILLIONAIRES
Current Year : 23.5
Last Year’s/One Year Old : 22.8
Two Years Old : 16.1
Three Years Old : 12.4
Four Years Old : 6.3
Five Years Old : 6.6
Six Years Old or Older :12.3
¹Those purchasing motor vehicles accounted for 81 percent of this sample of millionaires; those leasing accounted for 19 percent.
TABLE 4-2 MOTOR VEHICLES OF MILLIONAIRES: PURCHASE PRICE
Amount Spent for Latest Model Purchased ; Percent Who Paid This Amount or: (Less) [More] ; Most Amount Ever Spent for a Motor Vehicle ; Percent Who Paid This Amount or: (Less) [More]
$13,500 ;(10) [90]; $17,900 (10) [90] $17,500 ;(20) [80]; $19,950 (20) [80] $19,500 ;(30) [70]; $23,900 (30) [70] $22,300 ;(40) [60]; $26,800 (40) [60] $24,800 ;(50) [50]; $29,000 (50) [50] $27,500 ;(60) [40]; $31,900 (60) [40] $29,200 ;(70) [30]; $35,500 (10) [30] $34,200 ;(80) [20]; $41,300 (80) [20] $44,900 ;(90) [10]; $54,850 (90) [10] $57,500 ;(95) [5] ; $69,600 (95) [5]
You can look at all of this another way. The typical millionaire in our survey (one in the 50th percentile) spent about $29,000 for his most expensive motor vehicle. This equates to less than 1 percent of his net worth. The average buyer of a motor vehicle in America has a net worth that is less than 2 percent of that of these millionaires. Do they buy motor vehicles that cost 2 percent of what millionaires pay?
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If they did, they would spend, on average, about $580 (2 percent of $29,000). Instead, typical motor vehicle buyers spend the equivalent of at least 30 percent of their net worth for such purchases. Note also that, on average, American consumers buy new motor vehicles at a price that is 72 percent of the most that a typical millionaire ever spent on a motor vehicle. Does this give you some idea of why so few Americans are millionaires?
Those millionaires who lease vehicles are a minority—fewer than 20 percent. What was the “price” of their most recent acquisition/lease? We estimate that 50 percent leased vehicles that were priced at $31,680 or less. About 80 percent leased vehicles valued at or under $44,500. People often ask us, “Should I lease?” Our answer is always the same:
More than 80 percent of millionaires purchase their vehicles. If and when more than SO percent begin leasing, we will change our recommendation.
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MAKES OF MOTOR VEHICLES
What types of motor vehicles do millionaires drive? U.S. car manufacturers may be pleased to note that their makes account for 57.7 percent of the vehicles millionaires are driving; Japanese makes account for 23.5 percent, while European manufacturers hold 18.8 percent. What makes of cars are most popular with millionaires? The following are listed in rank order according to their respective market shares:
1. Ford (9.4 percent). The most popular models include the F-150 pickup and the Explorer sports utility vehicle. (American sports utility vehicles in general are becoming increasingly popular with the affluent.) About three in ten millionaire Ford drivers own F-150 pickups. About one in four drive Ford Explorers. Note that the F-150 pickup is the number-one vehicle sold in America. Thus, drivers of pickups have something in common with many millionaires.
2. Cadillac (8.8 percent). More than 60 percent of Cadillac owners drive the De Ville/Fleetwood Brougham.
3. Lincoln (7.8 percent). About half have Lincoln Town Cars.
4. A three-way tie: Jeep, Lexus, Mercedes (6.4 percent each). Almost all millionaires who own Jeeps choose the Grand Cherokee sports utility model. In fact, this model ranks first among all models owned by millionaires. Nearly two-thirds of Lexus drivers choose the LS 400 model. The favorite model of Mercedes-Benz is the S Class.
5. Oldsmobile (5.9 percent). The overall favorite model is the Olds 98.
6. Chevrolet (5.6 percent). Ten different models are represented. The most popular include the Suburban and the Blazer sports utility vehicles.
7. Toyota (5.1 percent). The Camry model accounts for more than half of this segment.
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8. Buick (4.3 percent). The Le Sabre and Park Avenue models were found to be most popular.
9. A two-way tie: Nissan and Volvo (2.9 percent each). The most popular Nissan is the Pathfinder sports utility vehicle; for Volvo, it is the 200 Series.
10. A two-way tie: Chrysler, Jaguar (2.7 percent each).
Other popular makes include Dodge, BMW, Mazda, Saab, Infiniti, Mercury, Acura, Honda, GMC, Volkswagen, Land Rover, Subaru, Pontiac, Audi, Isuzu, Plymouth, and Mitsubishi. The top three manufacturers are General Motors Corporation, with approximately 26.7 percent of the millionaire population; Ford Motor Company, with 19.1 percent; and Chrysler, with about 11.8 percent. As you can see, most millionaires are driving so-called Detroit metal. Most Americans who own motor vehicles also drive Detroit metal. How then can you tell if your neighbor who is driving a Ford, a Cadillac, or a Jeep is a millionaire or not? You can’t. It’s not easy to judge the wealth characteristics of people by the motor vehicles they drive.
An increasing number of affluent people are purchasing vehicles produced by American manufacturers, especially Buicks, Cadillacs, Chevrolets, Chryslers, Fords, Lincolns, and Oldsmobiles. This trend is related to the growing popularity of sports utility vehicles produced by Chrysler, Ford, and General Motors. What is it about Detroit metal that appeals to the wealthy? We can answer that question by reflecting on something that took place more than fifteen years ago.
After interviewing a group of ten millionaires, we walked into the parking lot of the research facility. We were very surprised to see that almost all of the millionaires we had just interviewed were driving full-sized Detroit metal, including Buicks, Fords, and Oldsmobiles. We looked at each other; one said: “These people are not into status; they buy automobiles by the pound!”
It’s true. Many American millionaires have a propensity to purchase full-sized automobiles that have a low cost per pound. The average per pound price for all new motor vehicles is $6.86. The full-sized Buick four-door sedan currently sells for less than $6.00 a pound; the Chevrolet Caprice, about $5.27 per pound; the Ford Crown Victoria, about $5.50; the Lincoln Town Car, less than $10.00 a pound; and the Cadillac Fleetwood, $8.26 a pound. The Ford Explorer sells for about $5.98 a pound. The most popular model among millionaires is the Jeep Grand Cherokee, which sells for $7.09 per pound.
How do these costs per pound compare with those of full-sized foreign cars? The BMW 740 sedan costs more than $15.00 per pound; the Mercedes-Benz 500SL is priced at more than $22.00 per pound; and the Lexus LS400 is now selling for more than $14.00 per pound. What about the Ferrari F40? It’s $175.00 per pound! (The estimated price per pound for most currently offered motor vehicles is provided in Appendix 2 of this book.)
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Many affluent respondents take joy in driving vehicles that do not denote so- called high status. They are more interested in objective measures of value. Some millionaires do spend considerable dollars for top-of-the-line luxury automobiles. But they are in the minority. For instance, approximately 70,000 Mercedes were sold in this country last year. This translates into about one-half of 1 percent of the more than fourteen million motor vehicles sold. At the same time, there were nearly 3.5 million millionaire households. What does this tell us? It suggests that the members of most wealthy households don’t drive luxury imports. The fact is that two out of three purchasers or leasers of foreign luxury motor vehicles in this country are not millionaires.
Domestic brands have long been in favor with older millionaires. We believe this attitude is becoming more common even among younger millionaires. Why? Because the real growth in the millionaire market continues to come from the entrepreneurial segment. Entrepreneurs, as a rule, are more price-sensitive than others when it comes to acquiring motor vehicles. Successful entrepreneurs judge each expenditure in terms of productivity. They often ask themselves the impact heavy spending for motor vehicles will have upon their business’s bottom line and ultimately their wealth. More often than not, they determine that investments for such items as advertising and new equipment are much more productive than very expensive motor vehicles.
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PURCHASE BEHAVIOR
What thought and behavioral processes do millionaires go through before buying a car? We have done extensive research on the various types of vehicle buyers that exist among the ranks of millionaires. It seems that rich people differ significantly even among themselves. Studying these various findings reveals valuable information about the attitudes and behaviors necessary to accumulate wealth.
There are four distinct buyer types within the millionaire population. Underlying these four types are two fundamental factors. First is dealer loyalty. Some buyers have a proclivity to patronize the same dealer over and over again. In other words, when “dealer loyalists” want to acquire a motor vehicle, they are inclined to work with the dealer who sold them their last vehicle (and the vehicle before that). About 45.7 percent of the affluent are dealer loyalists (see Table 4- a).
All the other millionaires are shoppers. They account for 54.3 percent of the population. These people have no desire to patronize the same dealer. They are very aggressive, price-oriented buyers. Often they take months to make their price-related vehicle purchase.
The second factor underlying buyer types is vehicle choice—new or used. Among the affluent, 63.4 percent prefer and buy new cars. The balance, 36.6 percent, have a very strong proclivity to purchase used vehicles only. Putting these two factors together produces four types of millionaire car buyers (see Table 4-3):
◆ Type 1: New Vehicle-Prone Dealer Loyalists (28.6 percent)
◆Type 2: New Vehicle-Prone Dealer Shoppers (34.8 percent)
◆ Type 3: Used Vehicle- Prone Dealer Loyalists (17.1 percent)
◆Type 4: Used Vehicle—Prone Shoppers (19.5 percent).
People with this orientation buy new vehicles only and have at least conditional loyalty to a dealer or set of dealers. Most affluent people have strong make/brand preferences concerning motor vehicles. So when they decide to buy a particular make of vehicle, loyalists already have a dealer in mind. They see certain benefits in buying new vehicles from the same dealer(s). But this doesn’t mean they walk into their favorite dealership, lie down, and roll over. On the contrary, price—even for them—is an important consideration. Perhaps you think these dealer loyalists are lazy. Could they be members of the so-called idle rich? No, this is not the reason they patronize the same dealer again and again. Perhaps you might speculate that these buyers just like their dealer. Well, affection is not the answer either.
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TABLE 4-3 MOTOR VEHICLE ACQUISITION ORIENTATIONS OF MILLIONAIRES
ORIENTATION TOWARD DEALERS:
VEHICLE TYPE - ORIENTATION: New Vehicle-Prone
Loyalists
1. % of All Millionaires Who Are: New Vehicle-Prone Dealer Loyalists = 28.6
% of All Loyalists = 62.5
% of All New Vehicle-Prone= 45.1
Shoppers
2. % of All Millionaires Who Are: New Vehicle-Prone Dealer Shoppers = 34.8
% of All Shoppers = 64.1
% of All New Vehicle-Prone= 54.9
TOTALS
% of All Millionaires Who Are: New Vehicle-Prone = 63.4
VEHICLE TYPE - ORIENTATION: Used Vehicle-Prone
Loyalists
3. % of All Millionaires Who Are: Used Vehicle-Prone Dealer Loyalists = 17.1
% of All Loyalists = 37.5
% of All Used Vehicle-Prone= 46.8
Shoppers
4. % of All Millionaires Who Are: Used Vehicle-Prone Dealer Shoppers = 19.5
% of All Shoppers = 35.9
% of All Used Vehicle-Prone= 53.2
TOTALS
% of All Millionaires Who Are: Used Vehicle-Prone = 36.6
TOTALS
% of All Millionaires Who Are: Dealer Loyalists = 45.7
TOTALS
% of All Millionaires Who Are: Dealer Shoppers = 54.3
Quite simply, new vehicle-prone dealer loyalists prefer to minimize their effort in choosing both a dealer and their type of vehicle (i.e., new versus used). New vehicle-prone loyalists put a tremendous amount of time and effort into generating their high incomes. They believe there is significantly more money to be gained from working than from going from dealer to dealer or looking for a “real buy” on a used vehicle. This group patronizes particular dealers because they also feel that these sellers give them the best packages overall. Some of the components of “these packages” go far beyond the price and physical dimensions of a motor vehicle.
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Why do these millionaires purchase new vehicles instead of used ones? Why are they less sensitive to the price variations of vehicles than are buyers of used cars? First, purchasers of new vehicles like new vehicles, although this is not the only reason they buy them. In their minds, buying new instead of used is much simpler; it requires less time and effort. To them, new vehicles are more reliable and more readily available in the models and colors and with the accessories they demand. In essence, they feel they must pay more to get more.
Yet price is somewhat important even for this group. Before they visit their favorite dealer, nearly half (46 percent) determine the dealer’s cost of a particular model. About one in three contacts at least two competing dealers to get “some feel for the impending deal.” Some study consumer magazines and other periodicals and price guides that reveal dealer cost figures. Location is another factor in understanding the behavior of this group. Many will contact dealers who are located outside their trade area, but most of these contacts are made merely to test local offers. Only about one in ten patronizes out-of-town dealers repeatedly.
There is another factor that explains the orientation of new vehicle-prone dealer loyalists:
More than one in five patronize dealers who are their clients or customers.
Networking is alive and well among the affluent in America. Many wealthy self-employed business owners believe strongly in reciprocity. Think for a moment. If you were a paving contractor, for example, where would you go to buy your vehicles? Would you buy from a stranger with a firm handshake, or from the automobile dealer who just gave you a contract to pave his parking lot? The answer should be obvious.
Many loyalists who are self-employed professionals, such as physicians, attorneys, CPAs, financial planners, and architects, also believe in this kind of reciprocity. The more enlightened ones tend to patronize those vehicle dealers who patronize them. It is not at all unusual for the owner of a dealership to have more than one hundred different suppliers who provide his business with products and services. Accordingly, there is some expectation on his part that these suppliers will return the favor. Many affluent dealer loyalists receive customer referrals from car dealers whom they patronize. In turn, 25.5 percent of the loyalists indicate that they refer their associates and friends to selected dealers. The dealers reciprocate by giving these buyers significant price discounts on their purchases.
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Many millionaires are dealer loyal for another reason. About 20 percent patronize dealerships that are owned by a relative or close personal friend. Many also prefer to deal directly with the owner of the dealership they patronize; 37 percent deal exclusively with the owners. Why? Because they believe this will assure them of getting an excellent overall package.
NEW VEHICLE–PRONE DEALER SHOPPERS (34.8 PERCENT)
The affluent with this orientation believe that the price discounts they get through aggressive shopping and negotiating with multiple dealers are more than worth the time and energy exerted. On average, they have spent about 9 percent less than new vehicle-prone dealer loyalists for the most expensive motor vehicle they ever purchased. On their most recent purchase, they paid about 14 percent less than loyalists.
Loyalists tend to purchase somewhat more expensive cars, which accounts for about half the variation in the average prices paid by members of the two groups. In contrast, new vehicle-prone dealer shoppers are more sensitive to the price variations of competing dealers. Shoppers are typically experienced negotiators; many enjoy shopping and haggling. In contrast with dealer loyalists, dealer shoppers are significantly less likely to patronize dealerships owned by relatives or close personal friends, to refer others to dealers who reciprocate by giving them significant price discounts, to purchase exclusively from the owners of dealerships, or to buy from dealers who do business with them. On the other hand, they are much more likely to take weeks—even months—”to shop around for the very best deal,” demand a“dealer-cost” or “below-cost” price, or “purchase a new model that is heavily discounted and resell it within a year or two at nearly the same or higher price.”
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BIDDING FOR YOUR BUSINESS
If you dread the thought of shopping in person for your next motor vehicle, consider an alternative method. Mr. Mark R. Stuart is a friend of ours who has purchased many motor vehicles by visiting competing dealers. But he had never purchased a sports utility vehicle until this year. Although he lacked experience with buying this kind of vehicle, he thought of a way to avoid spending countless hours visiting competing dealers. Below is the fax that Mr. Stuart sent to the sales managers of six local area Ford dealers.
Three sales managers responded immediately by faxing their very competitive bids to Mr. Stuart, who accepted one of these. It seems that his past experience as a procurement officer for the U.S. Army was useful in civilian life. Do you have a fax machine and a need for a new sports utility vehicle?
TO: Sales Manager of new cars
FROM: Mark R. Stuart Fax: (404)XXX-—XXXX RE: Request for Quotation
If you are interested in earning my business, please reply to me by fax at (404)XXX-XXXX. This is a cash purchase (no trade), subject to sales tax in
County. If you do not have this vehicle in stock or on order, I am in no rush and can wait for delivery. Specifications are as follows:
Current Model Year Ford Explorer Limited 4X4
Ivory Pearlescent: Saddle Leather Options: Sun roof
CD player
Front license plate bracket
Your quotation should detail the price by line item, including tax, tag, title and any-other fees. I look forward to receiving your reply by fax. Please do not call me. If you have any questions, please include them in your fax reply. I will call you if I have any questions. Thanks.
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USED VEHICLE–PRONE DEALER LOYALISTS (17.1 PERCENT)
Why do millionaires such as those in this group with annual incomes in excess of $300,000 and a net worth of nearly $4 million have to buy used vehicles? They don’t.
Overall, these millionaires get more satisfaction from acquiring used instead of new. In purchasing cars that are two or three years old, they feel that the original owner has paid while the vehicle was depreciating in value. They often plan to resell their used acquisition in two or three years and recoup much of their initial payout. Many also feel that aggressive bargain shopping for new vehicles is a waste of time and energy. They believe that new cars are overpriced at the manufacturer’s or wholesale level; in their minds, one can’t even hope to buy a new vehicle for much less than the dealer paid for it. For many, the real discounts on motor vehicles can be found in the used-vehicle market.
Used vehicle-prone dealer loyalists have the highest percentage of entrepreneurs among their ranks. Entrepreneurs are extremely price-sensitive when acquiring motor vehicles. Their preference to invest much of their income in assets that appreciate, however, must be balanced with the need of many successful entrepreneurs to drive quality motor vehicles. For this group, the acquisition of quality late-model used vehicles is the solution. Their favorite makes/models include used Jeep Cherokees, Cadillac De Villes, Ford F-150 pickups and Explorers, Lincoln Town Cars, Chevrolet Caprices and Suburbans, and Infiniti Q45s.
The members of this group spend less money on such acquisitions than do the members of either of the new vehicle-prone groups. The percentage of their incomes allocated for motor vehicle purchases is also the lowest of all the groups. On average, they spent only 7.6 percent of their income on their most recent acquisition, and only 9.9 percent for their most expensive purchase. As a percentage of their net worth, these purchases represent only 0.68 and 0.89 percent of their net worth respectively.
How do the members of this group make purchase and dealer patronage decisions? First, most determine the dealer cost on a new model of their preferred vehicle. Then they determine the vehicle’s projected depreciation. This information is used to bolster their decision to purchase a used version of their chosen model. Information about the current retail and wholesale value of used vehicles is available at many libraries and book stores. Often, enlightened CPAs provide this information to their clients.
Used vehicle-prone dealer loyalists then examine the offerings of several dealers. This is done to judge the willingness of local area dealers to “earn the business” of the members of this group. Some check the prices of vehicles offered by individuals as listed in the classifieds. Often, they telephone those listing their vehicles and ask private-party sellers if they would be willing to lower their asking price. In most cases, the callers are just conducting price- sensitivity research. The used vehicle-prone dealer loyalist uses the information he gathered as a bargaining chip in negotiating with his chosen dealer(s). In most cases, the chosen dealer will meet or beat the prices offered by the so-called competition.
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Millionaires in this buyer group patronize the same dealer(s) repeatedly. Buyers feel that repeat patronage can earn them price and even service concessions, but this is not the only reason for their loyalty. Like many new vehicle-prone dealer loyalists, 36 percent of used vehicle-prone dealer loyalists told us that they buy used cars from dealers who do business with them. Many also patronize dealers who go out of their way to refer customers to them. Remember that this group contains a high concentration of entrepreneurs, self- employed professionals, and very successful sales and marketing types. Obviously, they believe in reciprocity. About one in four acquires his vehicle from relatives or close friends who are in the automotive industry. One in three used vehicle-prone dealer loyalists makes his purchase by negotiating exclusively with the owner of the dealership. One in five deals exclusively with the top sales professional at a chosen dealership. Such buyers feel that top sales professionals have great leverage in persuading sales managers to agree to sell at low prices.
USED VEHICLE–PRONE SHOPPERS (19.5 PERCENT)
Those in this group are the most price-sensitive and the most aggressive bargain hunters of all those we have profiled. They spend less on average than do the members of any of the other groups. They paid an average of $22,500 for their most recent acquisition, under $30,000 for their most expensive. Their latest purchase represents less than 0.7 percent of their wealth; their most expensive acquisition, less than 0.9 percent. This group contains the smallest proportion who have clients, friends, or relatives in the automotive industry. Given that they don’t have a friend in the automobile business, how do they go about finding a good deal? First and foremost, they don’t buy new vehicles. Also, you will note that the title of this group—used vehicle-prone shoppers—does not contain the word dealer. These people buy their used vehicles from all types of seller. Most often they buy from private parties, but they often shop at dealerships, leasing companies, financial institutions, consignment companies, auction companies, and agents.
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Used vehicle-prone shoppers are extremely patient people. They are the most likely of all millionaire car buyers to take months to find the best overall deal. They never seem to be in a hurry to buy. In some ways, they are always looking for a deal. They are in a semi-searching/buying state all the time.
In one instance, a member of this group casually looked around for a deal on a late-model Chevrolet for more than seven months. But unlike Dr. South from Chapter 3, this bargain shopper never spent a great deal of time making this acquisition. It seems that on his long commute to work, he routinely passed by three dealers. If he noticed a vehicle that caught his eye, he would contact the dealer by phone. At the same time he would telephone sellers who had their vehicles listed in the classifieds. He eventually made a purchase from a private party at a price substantially lower than at any dealer he had contacted. He told the seller:
I am not in a hurry. Give me a call in a month or so and I’ll make you an offer. But right now you’re asking nearly as much as all the dealers I have been in contact with in the past few weeks.
He tells the same thing to all the people he contacts.
He also has a favorite time of the year to negotiate. He claims he is most successful in cutting deals from the last two weeks of December into February. During the winter season, he says, sellers don’t find a lot of shoppers out and about. Christmas-related expenses and activities and the cold weather distract and discourage most potential buyers from shopping during this period. They do not discourage many used vehicle-prone shoppers. It is not at all unusual for buyers in this group to have four or more sellers competing simultaneously for their business during these months!
The members of this group typically acquire low-mileage vehicles that are two to four years old. Their favorite makes include Fords, Mercedes, Cadillacs, Lexuses, Chevrolets, Nissans, and Acuras.
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WHAT BUYING HABITS REVEAL
One can learn a great deal about affluent people by analyzing their vehicle-buying habits. For instance, note that most millionaires are dealer shoppers as opposed to dealer loyalists. Not by a large margin (54.3 versus 45.7 percent), you may logically counter. But this margin is a bit misleading. Net out the percentage of dealer loyalists who are so inclined because they have strong reciprocal relationships with their favorite dealer. Factor out also those loyalists who patronize dealerships owned by relatives and close personal friends. Then ask about the percentages of loyalists versus shoppers. If you do, you will find that there are at least two shoppers for every loyalist among the ranks of American millionaires.
What about vehicle purchasers in general? Most vehicle buyers are not wealthy. Thus, one might logically expect them to spend more time and energy shopping for the best deal. Our research shows the opposite. Those who are not wealthy are less likely to shop, haggle, and negotiate than those who are millionaires. Car-buying behavior does indeed help explain why some people are wealthy while most are not and never will be.
More aggressive bargain shoppers for motor vehicles also tend to bargain hunt for other consumer products. These people also tend to plan their expenditures. Given these findings, what buyer type ofthe four profiled above would you expect to be the most frugal in general?
Have you guessed that it is the used vehicle-prone shoppers? Used vehicle- prone shoppers are the most aggressive and most price-sensitive when it comes to acquiring motor vehicles. They shop using a wide variety of sources. And, on average, they pay significantly less for their vehicles than do members of the other groups.
Of all the types studied, used vehicle-prone shoppers are the most illuminating for those interested in studying the path to affluence. Why? Because of all the groups studied, its members have the highest ratio of net worth dollars for each dollar of income: For every one dollar used vehicle-prone shoppers realize in income, they have $17.2 of net worth. They have the lowest average income of all the groups, yet, on average, they have been able to accumulate more than $3 million. How did they do it? Their wealth development strategy is worth detailing.
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MILLIONAIRES WHO ARE USED VEHICLE-PRONE SHOPPERS
What factors explain variations in wealth accumulation? Income is a factor. People with higher incomes are expected to have higher levels of wealth. But note again that members of this group of used-vehicle buyers have a significantly lower income than the average for the other groups of millionaires. About two-thirds have incomes in the high-five-or low-six-figure range.
Occupation is another factor. We have noted many times that entrepreneurs account for a disproportionately large share of the millionaires in America. Conversely, most of the other high-income-producing occupations contain disproportionately smaller portions of high-net worth types. These include physicians, corporate middle managers, executives, dentists, accountants, attorneys, engineers, architects, high-income-producing civil servants, and professors. But there are exceptions. For example, each of these non-entrepreneurial occupations is represented in the used vehicle-prone shopper group we are profiling.
Used vehicle-prone shoppers are unique even among their millionaire cohorts. Note that, on average, they have the highest score values on all seven measures of frugality (see Table 4-4).(139 of 277)
TABLE 4-4 ECONOMIC LIFESTYLES OF MOTOR VEHICLE ACQUISITION TYPES
Economic and Financial Lifestyle Correlate ; New Vehicle-Prone Dealer Loyalists(28.6%) ; New Vehicle-Prone Dealer Shoppers(34.8%) ; Used Vehicle- Prone Dealer Loyalists(17.1%) ; Used Vehicle-Prone Dealer Shoppers (19.5%) .
Consumption Inoculation “Most people who live in upscale neighborhoods have litle real wealth.” ; 59¹ Low (4) ; 106 High (2) ; 111 Low (3) ; 136² High (1) .
Self-Designated Thrift Orientation " I have always been frugal.” ; 82 Low (4) ; 108 High (2) ; 89 Low (3) ; 121 High (1) .
Legacy of Thrift Orientation 9) 99 105 WW
“My parents are [were] very frugal.” Low (4) Average (3) Averoge (4) High (1)
Household Budgeting Orientation 95 10] 85 118 “Our household operates on o fairly Average (3) Average (2) low (4) High (1) wellthought-out annual budget.”
Fastidious Record-Keeping Orientation 101 94 %6 12
“| know how much our family spends Average (2) Average (4) Average (3) High (1) each year for food, clothes, and shelter.”
Borgain-Oriented Clothes Shopper 69 89 123 145
“| never bought o suit that was not Low (4) Low (3) High (2) High (1)
on sale (discounted).”
Discount Store Patronage Orientation 62 106 W 136 “| often buy my suits at factory outlets.” Low (4) Average (3) High (2) High (1)
"For example, new vehicle-prome deoler loyolists have o significantly bower score (59) on the consumption inoculation scole when compared to the composite score for all millionaites (100). They ronk last/fowrth on this consumption inoculation scale,
"For exemple, used vehicle-prone shoppers have o significantly higher seore (136) om the consumption inoculation scale when compared to the composite score for all millionaires (100). They rank first om this consumption inoculation scale.
Behind their frugal behavior is a strong set of beliefs. First, they believe in the benefits of being financially independent. Second, they believe that being frugal is the key to achieving independence. They inoculate themselves from heavy spending by constantly reminding themselves thatmany people who have high- status artifacts, such as expensive clothing, jewelry, cars, and pools, have little wealth. They often tell the same thing to their children. In one case we studied, a youngster had once asked his dad why their family didn’t have a swimming pool. His dad answered with the “big-hat-no-cattle” response that many frugal people articulate. He told his son that they could have a pool installed, but that a new pool would mean the family would not be able to send the son to Cornell.
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Today the son, Carl, is a Cornell graduate. No, his folks never had a swimming pool installed. What will happen when Carl’s children ask about their father’s proclivity to frugality? Will he be able to defend his purchasing orientation and his frugal nature in general? The answer to this question is reflected in the results given in Table 4-4. Used vehicle-prone shoppers are significantly more likely to report the following:
◆ My parents are [were] very frugal.
Once a member of the used vehicle-prone shopper group told us about his frugal habits. He explained that his parents were farmers:
My family in Nebraska understood the value of a dollar. Dad used to say seeds are a lot like dollars. You can eat the seeds or sow them. But when you would see what seeds turned into ... ten-foot-high corn ... you don’t want to waste them. Consume them or plant them. I always get a kick out of watching things grow.
This man derived considerable enjoyment in his nondescript, four-door, three-year-old American-made sedan. He believed that his vehicle never revealed to the public that he was very affluent. Nor, according to him, would it ever encourage thieves to follow him home to burglarize his property. He often referred to his car as “the last one that would ever be stolen out of the airport parking lot!”
FRUGALITY TRANSLATES INTO WEALTH
Being frugal is a major reason members of the used vehicle-prone group are wealthy. Being frugal provides them with a dollar base to invest. In fact, they invest a significantly larger portion of their annual incomethan do any of the other types of vehicle buyers. This also applies to their contributions to pension/annuity programs. As you may have already predicted, the used vehicle— prone shopper group also contains the highest percentage of prodigious accumulators of wealth. This group is significantly more likely to agree with this statement:
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◆ Our household operates on a fairly well-thought-out annual budget.
To budget properly, one must keep records of disbursements. Here again, the used vehicle-prone shopper is more fastidious than any of the other types. More of them agree that:
◆ I know how much our family spends each year for food, clothing, and shelter.
Used vehicle-prone shoppers are also bargain-oriented when it comes to buying clothing. Their score of 145 was the highest overall (see Table 4-4). A significantly higher percentage agreed with this statement:
◆ I never bought a suit that was not on sale (discounted).
Used vehicle-prone shoppers are significantly more likely to be discount-store patrons than other types of vehicle buyers. This is evident from their positive response to the following statement:
◆ I often buy my suits at factory outlets.
In addition, they are significantly more frequent shoppers at Sears than any of the other types of millionaire vehicle buyers. This group, on average, spends considerably less for a variety of items. As discussed in Chapter 2, we asked all our millionaire respondents to tell us the most they ever paid for (1) a wristwatch, (2) a suit of clothing, and (3) a pair of shoes. Once again, the used vehicle-prone shopper demonstrated his frugality. Members of this group spent only 59 percent as much as the other millionaires in our survey for a wristwatch, 83 percent for a suit, and 88 percent for a pair of shoes.
The majority of people do not have the ability to increase their incomes significantly. Yet income is a positive correlate of wealth. What, then, is our message? If you cannot increase your compensation significantly, become wealthy some other way. Do it defensively. This is how most of the used vehicle- prone shoppers did it. They successfully inoculated themselves from contracting the high-consumption lifestyle that many of their neighbors adopted. More than 70 percent of their neighbors earn as much or more than they earn. But fewer than 50 percent of their neighbors have a net worth of $1 million or more.
Most of these millionaires’ high-income, low-net worth neighbors make the wrong assumption. They assume that by focusing their energy on generating high incomes, they will automatically become affluent. They play excellent offense in this regard.
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Most are positioned in the top 3 or 4 percent or higher of the income distribution for all U.S. households. Most look the part of millionaires. Yet they are not wealthy. They play lousy defense. We have stated many times the belief of countless millionaires who have told us:
It’s much easier in America to earn a lot than it is to accumulate wealth.
Why is this the case? Because we are a consumption-oriented society. And the high-income-producing nonmillionaire neighbors of used vehicle-prone shoppers are among the most consumption-oriented people in America.
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