Jessie had just taken his second test-drive in the new

Jessie had just taken his second test-drive in the new three-quarter–ton pickup truck he was considering purchasing. The salesman had become his “best” friend in the past three hours, pampering him with warm introductions to every “manager” in the dealership, free soft drinks from the vending machine, curb service with two vehicles he had test-driven, and assurances that the salesman was “working for Jessie” and wanted to “earn Jessie’s business.” The salesman had barraged Jessie with a series of questions and baited him with “truck month” and “special deals” and “incentives for a short time only.” He had informed Jessie of the “special financing, rebates, and dealer incentives” that would expire very soon and that Jessie would miss out if he didn’t buy his truck today and that the dealership “seriously needed his trade-in and would offer top dollar.” The salesman had figured out Jessie’s payment for him, an amazingly low payment per month. Then Jessie did the smartest thing he had done in a long time. He said, “I have to be somewhere in twenty minutes, but I might come back tomorrow—when do you open in the morning?” The next day, Jessie called one of his professors from college, followed up their conversation with phone research, and within twenty minutes, returned to the dealer with estimates of his trade-in value from three used-car websites, a loan pre-approval from his credit union, and a summary of the dealership’s actual cost of the truck he was interested in from another website. He greeted the salesman and made an offer for the truck, below the invoice for the vehicle. “We just can’t do that, Jess,” said the salesman. “That’s below what we have to pay for the truck.” “Well, first, you have added charged items that aren’t even done yet, like the sprayed-in bed liner for $670 that I can have done for $230 from the same place you guys have it done. So I deducted that, and the special sealant extra charges that are included if a vehicle is painted, and all of them are (painted). . . . Here are some other items that are similar, and they come to $1,945. I deducted half of your destination charge, and then I deducted half of your holdback to arrive at this number.”  The shocked salesman took the information to his manager, who returned with another two managers to try to convince Jessie that his offer was not possible. The hard sell continued into a discussion of Jessie’s trade-in, and finally, Jessie told them he just needed a deal and might find it at another dealer, or even with a different make of truck, and that if they were interested in trying to meet his offer, to call him. And then he left again, for the second time. The next day, Jessie received a call. The manager had agreed to his offer. When Jessie arrived, the truck had been cleaned, had a large SOLD sign in the window, and was parked at the front door. Jessie walked into the wrestling ring. The manager had agreed to Jessie’s offer on the new truck but had priced his trade-in at $8,000 less than the trade-in value Jessie had looked up. After another thirty minutes of hard-sell tactics, Jessie left the dealership for the third time. An hour later, Jessie got a call that the used-car manager wanted to talk with him. After a visit with the used-car manager, it was apparent that the callback was for the purpose of talking Jessie down from his expected trade-in value. Again, Jessie left the dealership. That evening, the general manager called Jessie. He said that he could come within $450 of Jessie’s offer and that if Jessie would come back to the dealership, the deal would be made. Jessie agreed and returned to the dealership the next day. The deal was indeed done, and written up, and the official “offer” reflected all of Jessie’s requirements. And it was exactly $450 more than the deal Jessie had proposed. To a chorus of how much money the dealership was losing, he was hustled into the finance manager’s office. Another barrage of deals flew Jessie’s way. He was offered extremely overpriced credit, life insurance, gap insurance, extended warranties—and special deals on all three after he refused them all; he also refused the special deals on those items. The financial double-talk continued, but Jessie stood his ground, and the papers were finally finalized and signed. That night, Jessie summed up the total additional costs the dealer tried to talk him into accepting. His truck would’ve ended up costing $42,360. The additional costs he could have incurred if he had given in to the hard sell totaled $19,763! Jessie later acquired an extended warranty for 30 percent of the cost of the dealer warranty, and he had some custom touches added for a fraction of the cost the dealer had wanted to charge.

1. How important is it to be well informed about a negotiation before beginning the negotiation? Where would you go for guidance?

2. There was obviously a material cost of failing to negotiate effectively in this case. Can you think of other situations where costs of poor negotiation are high?

Dealer
A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the...

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