Business professionals seeking to improve their negotiation training can learn a great deal from the mistakes made in newsworthy negotiations.
To take one example that could be used in negotiation training: Steven M. Davidoff of the New York Times’ “DealBook” analyzed how the U.S. governments rushed negotiations to save U.S. automaker Chrysler back in 2009 led to a costly long-term problem.
In 2009, when Chrysler on the verge of financial collapse, the Treasury Department negotiated a swift solution to save it from extinction. Chrysler would go into bankruptcy, and then its ownership would be distributed as follows: 68% to Chrysler union workers’ health-care trust; 20% to Italian automaker Fiat; 10% to the Treasury Department; and 2% to the Canadian government. Chrysler also gave a $4.59 billion note to the health-care trust to eliminate the company’s future health benefit obligations to retirees. Fiat also negotiated a plan to eventually acquire all of Chrysler by gradually buying the health-care trust and the federal government’s stake in Chrysler.
At the time, the deal was considered to be a bargain for the U.S. government, which spent $8.5 billion in taxpayer dollars on the bankruptcy. A few years later, the deal looked less rosy. Since emerging from bankruptcy, Chrysler turned itself around and became profitable. Meanwhile, Fiat struggled in the face of an economic downturn in Europe.
Acquiring Chrysler became Fiat’s best hope of staying solvent. In pursuit of this goal, Fiat acquired the U.S. and Canadian governments’ stakes in Chrysler for $640 million in 2011.
When Fiat attempted to begin buying the health-care trust’s stake in Chrysler, however, it became embroiled in a battle. The voluntary employee beneficiary association, or VEBA, calculated that its stake in Chrysler was worth at least $342 million. Meanwhile, Fiat claimed the same percentage of Chrysler was only worth $139.7 million.
According to Davidoff, the dispute can be chalked up to “a $4.5 billion drafting error.” When hastily drawing up their contract to save Chrysler, Justice Department lawyers failed to specify whether the $4.59 billion dollar note issued to the health-care trust should be calculated when determining the value of Chrysler.
The error points to the risks involved in negotiating deals on the fly. In its quest to save Chrysler, the government had no time to waste. But business negotiators would be wise to avoid any artificial pressures put on them to wrap up a deal in a hurry. The results can be disastrous, as the Chrysler story shows.
What other examples can you think of that could be used in negotiation training?
Originally published in 2013.
It appears that NET PRESENT VALUE is being used by FIAT and FUTURE VALUE is being used the employees. When calculating the value of the company now, NET PRESENT VALUE is the correct amount; therefore, Fiat’s assessment is correct.