Many lessons can be learned from the negotiation over the potential bailout of the U.S. automakers. Here are three.
1. Do the “Standards Dance.”
Parties in sophisticated negotiations often seek “independent” standards to justify the “fairness” of their positions. Parties then negotiate over the “most” fair standard. Here, Republican senators sought concessions from the U.A.W. based on the lower hourly rates paid to U.S. autoworkers employed by foreign automakers. That lower cost standard sounds fair, right?
The U.A.W.’s response? We will consider significant cuts. But don’t ask us to unilaterally concede without asking the other interested parties (suppliers, etc.), to also make significant concessions. Reciprocity, another standard, is also fair, right?
2. Design an offer-concession strategy.
It’s critical to strategically plan for when, where and how to make offers and concessions to ensure you achieve your goals. Here the automakers – after their disastrous first appearance before Congress – were told to come back with an offer. So they put together a plan and sought approximately $38 billion. In effect, that was their first offer. Congress countered with zero when the U.S. Senate balked at the bailout.
The number currently on the table from the White House appears to be around $14 billion (less than half the automakers’ first offer). I wonder what the automakers set as their goal when they started at 38? I’ll bet it was around $15 billion.
3. Take practical steps to maximize your leverage.
You need to take practical steps to maximize your leverage. Last week, the automakers were likely simultaneously 1) negotiating with the Senate for a Congressional bailout and 2) in touch with the Bush Administration about stepping in as a last resort with the already approved financial bailout fund.
By taking these steps at the same time, the automakers maximized their leverage by exploring a decent Plan B if Congress rejected their request. And when the Senate said no – the White House stepped in.
While I don’t know how this will turn out, it will certainly provide more negotiation lessons. Stay tuned.