Assignment task:
Honda Motors Company was in the process of negotiating with their supplier the Goodyear Tire Company They needed to purchase tires for their newly designed Honda Civic model. It was a large contract as they wanted a single source for tires for the 10000 Civics that were to be produced in 2020.
The tires for the 2019 Honda Civic were supplied by an offshore company. Some of these tires experienced premature wear and needed to be replaced under warranty at Hondas expense. For the 2020 model Civics Honda wanted to align themselves with a tire supplier that had a good reputation for quality. Goodyear was a solid choice, the tires would be expected to perform better and save Honda costly warranty repairs. In addition the Goodyear brand strength amongst consumers was strong, this would be likely boost car sales for Honda's that had Goodyear tires.
Goodyear was pleased to be negotiating this new contract with Honda. One of Goodyear's internal goals for the fiscal year was to become the number one tire supplier to OEM,s (original equipment manufacturers) in the world. This new business with Honda would put them on track with meeting those sales goals. Goodyear also thought that if they could secure the tire supply for the Civic, they could have a better chance to sell tires for other Honda models.
To plan for the negotiation Goodyear made cost calculations on the required tires. They calculated that the lowest price that they could sell the tires for is $150, anything lower and it would not be profitable. Goodyear quoted Steve $165 per tire to give themselves some negotiating room. He knew that given the size of the contract Honda would most likely ask for a lower price.
Honda did some market research and cost analysis of their own and they determined that they could buy the tires from another approved supplier for $160. To start the negotiation Honda offered Goodyear $140. It was obvious that both sides had a lot of work to do get to an agreement.
In the first round of negotiations, Goodyear offered to drop the price of the tires to $160 provided that Honda would extend the contract for a second year. Honda agreed that they could extend the contract to include the 2021 Civics but unfortunately, they felt the tire price was still too high.
The second round of negotiations started the next day. During the discussion, the topic of tire warranty came up. Honda wanted a better warranty on the tires offered by Goodyear. The current warranty only included 3 years or 60000 km prorated. Honda wanted to extend the warranty to 4 years 80000km prorated. Honda stated "your tires have an industry leading reputation for longevity, extending the warranty will address this strength". Goodyear deliberated and after a lengthy caucus agreed to extend the warranty for the same price of $160. The meeting was adjourned for the day without a commitment from Honda.
The next day when round three of the negotiations started. Honda was pleased with the offer to extend the warranty but was still not happy with the cost per tire. They stated "the cost of the tires is still too prohibitive for us to move on with the agreement, you need to do better". Goodyear thought that this was just a tactic to leverage a lower price. If they said no to a price reduction would Honda move on to another supplier and they would lose the business? Goodyear had to carefully plan their next move in the negotiation.
Question: What are the underlying interests of the buyer and seller in the negotiation????