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Resolving Value Disconnect between Buyers and Sellers of Auto Dealerships

In my previous post “2017 in Review: Trends in Retail Auto Mergers and Acquisitions,” I highlighted an all-too-familiar and continuing trend: the battles between buyers and sellers over valuation — battles that arise from what I like to call the “value disconnect.”

Sellers, who naturally want to get top dollar for their dealerships, are often reluctant to admit annual sales increases or operational efficiency haven’t been the same as in years past. Buyers, who naturally want to pay as little as possible, use this fact in an attempt to negotiate a lower price. Bringing the two sides closer to a reasonable valuation of a given dealership can be one of the biggest challenges in the negotiating process.

Unfortunately, finding a phrase to reflect the source of this friction (the phrase “value disconnect”) is far easier than pining down its causes or finding a “go to” tactic to combat it. In this post, I examine the causes of the value disconnect, separating the causes attributable to the seller from those attributable to the buyer, and I offer guidance on how to

Managing Emotions in Buy/Sell Negotiations

Business transactions, especially mergers and acquisitions (my specialty), involve both head and heart — cognition and emotion. However, we focus far more on the price and terms in an agreement than on the emotions that almost always play a major role in the outcome, even to the point of determining whether negotiations end in a deal or a deadlock. Instead of understanding emotion and using it to our benefit either through insight or action, we often let emotion drive an outcome, usually to the detriment of everyone involved.

Photo by Tommaso Urli (sourced from Unsplash)

I am not suggesting that we leave our emotions outside the door of the conference room, if that were even possible. Emotions play a valuable role in negotiating. For example:

  • Desire pulls parties together to initiate a transaction.
  • Eagerness gives us the energy to persevere when the negotiation drags on.
  • Fear can encourage us to examine a contract more closely.
  • Disappointment can signal the need for further discussion.
  • Anger is sometimes used to make an overly aggressive party realize they need to back off.

What is important is that we maintain our poise and manage the emotions (both our own and our counterpart’s), so these emotions do not control us or the deal.

Alleviating Anxiety

In a study entitled “Can Nervous Nelly Negotiate? How Anxiety Causes Negotiators to Make Low First Offers, Exit Early, and Earn Less Profit,” Alison Brooks and Maurice Schweitzer of The Wharton School of Business at the University of Pennsylvania, conclude

Zero Sum Thinking

How to Avoid Zero Sum Thinking

In the business world, a major force in deal dynamics generated from fear is zero sum thinking — the notion that in any transaction, one party’s gain is, by definition, the other party’s loss. This basic premise forms a simplistic foundation for socialism and communism— the premise being that there is a fixed amount of wealth, so if one person has too little others must have too much. The only solution offered by these economic models is to redistribute the wealth from the haves to the have-nots. Capitalism, on the other hand, is based on the premise that people can create wealth through innovation and investment, a non-finite model of wealth and value. The best solution this system can provide is to create opportunities for everyone to become wealthier, or at least less poor.

I do not want to spark a debate over the pros and cons of either system, and I readily acknowledge that the above is very basic differentiation of the models. Perhaps we need a little of both — compassionate capitalism. However, I would like to generate a discussion over zero sum thinking, because I have witnessed its potential for creating discord in business as well as in personal relationships. Whenever we begin to think that someone else is gaining something at our expense, we feel as though we are being cheated. We can even begin to feel this way when we fear that what we stand to gain from a transaction is less than what the other party stands to gain, even when what we stand to gain is what we wanted all along. Oh, the injustice!Zero Sum ThinkingThe question becomes how do we respond in these situations? The typical response is to feel disappointed and perhaps even angry, but that brings us no closer to our objective of getting a fair deal, or the deal we had hoped for when the process started. There are better options to zero sum thinking.

Find the Value

If you begin to fear that someone else is gaining or is about to gain something at your expense, ask yourself: