Lessons Learned Negotiating for my First Car
October 18, 2012 2 Comments
In my early adulthood, I hated negotiating. The process seemed dirty, one which often felt like it required dishonesty. I remember my one attempt to haggle for a $25 t-shirt at a market in the Caribbean when I was 17. My strategy: opening my wallet and saying I only had $5. Somehow the merchant saw through this ruse. I ended up paying full price with the money from my other pocket.
Negotiating down the price of something is uncomfortable for many people:
- It creates confrontation
- Logically, items should be marked with a price that everyone pays
- Even after coming to an agreement, there’s always a sense of wonder if the price could have gone even lower
“Professional” negotiators often exaggerate with guilt trips such as “I’ve got kids to feed”
In Business As in Life, You Don’t Get What You Deserve, You Get What You Negotiate
Immediately after getting my first job offer soon after college, I went with my mom to the local car dealership. She was the negotiator in the family who drove the hardest bargain. I bought a car that Saturday from the first dealership I visited because I needed one for Monday. I went in expecting my mom to work her magic, but I sat and watched while the only additional value we extracted was an extra year of oil changes. Over time, I realized that I basically paid full price for something I didn’t have to, and I became determined to reduce my ignorance of negotiation.
An important concept to understand about negotiation is optimal pricing. Essentially, this means that the dealership wants to charge as much as any individual customer is willing to pay. The price is set to an arbitrarily high amount and each customer negotiates it down to an amount he or she is willing to pay. The dealership would not sell a car below what makes a profit. The salesman’s job is to make you feel like that baseline price is higher than it actually is. Does that make you feel more comfortable about negotiating? The additional money being paid above the baseline is going straight to profit!
The same applies to other scenarios, such as at a street market or negotiating salary. Obviously, there are many additional economic factors to consider, of which I know only a little. However, knowledge of this simple concept can ease discomfort about the negotiating environment.
Reaching the end of a job interview, the human resources person asked a young applicant fresh out of business school, “And what starting salary are you looking for?”
The applicant said, “In the neighborhood of $125,000 a year, depending on the benefits package.”
The interviewer said, “Well, what would you say to a package of five weeks’ vacation, 14 paid holidays, full medical and dental, company matching retirement fund to 50 percent of your salary, and a company car leased every two years, say, a red Corvette?”
The applicant sat up straight and said, “Wow! Are you kidding?”
And the interviewer replied, “Yeah, but you started it.”
-from Recruiters Network
Over the years, I’ve negotiated much more on my own, another car, home prices, salaries, etc. While I’m still very far from as proficient as I’d like to be, these experiences have taught me what to do and what are my weaknesses.
Create Objectivity by Having Someone Negotiate for You
A tip I learned from You Can Negotiate Anything is to ensure an objective party is negotiating for you. Because emotions often get in the way of logic, having someone who is invested only in reducing price can be highly beneficial. Relating this to my story above, my mom should have been objective in the situation but her own emotions were in play. She wanted to make sure I had a car so I didn’t have to borrow hers anymore. She did not want to experience the “pain” of lending her car any longer and was willing to have me pay to get my own.
Willingness to Walk away
The number 1 rule of negotiating is being willing to walk away from the deal. This gives you leverage.
In my example above, my mom was not willing to walk away, because she wanted me to have my own car. In other practical scenarios, this rule means that no one will give you a better price if he or she thinks you are going to buy something anyway. In contrast, if he or she senses your willingness to not come to an agreement, he or she will be more likely to meet your demands.
Collaborate on Less Significant Issues
Sometimes either party will not budge on the main issue, such as price. However, it can be possible to come to agreement on other items that are more significant to one side than the other. In the above example, this meant getting more free maintenance. In salary negotiation, it might mean getting extra paid time off or tuition reimbursement instead of a salary increase. There are many ways to add mutually beneficial clauses to meet in the middle of a negotiation. Additionally, this strategy is much less confrontational.
“If I give one to you, I have to give one to everybody else”
When going into a negotiation, make sure you understand the worst case scenario. Where possible, prepare beforehand to improve the worst case scenario. If missing out on a job opportunity means not having a job, then you can improve the worst case scenario by trying to line up a second job offer. Little tips like the ones above, plus many others, can help to make you a deadly negotiator, and as with anything, practice makes perfect.