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Sears, Roebuck And Co: The Auto Center Scandal

1186 words - 5 pages

SEARS, ROEBUCK, AND CO.: THE AUTO CENTER SCANDAL

Sears, Roebuck, and Co. began in the late 1800s as a mail-order company that sold farm supplies and other consumer items. Its first retail store opened in the mid-1920s. Responding to changes in American society, such as the move from farms to factories and the presence of the automobile in many homes, hundreds of retail stores opened over the years. The company expanded rapidly, and eventually it diversified to include other businesses: insurance (Allstate Insurance), real estate (Coldwell Banker), securities (Dean Witter Reynolds), and credit cards (Discover). Each of these other businesses became its own division, in addition to the ...view middle of the document...

In order to increase sales, however, commissions and product-specific sales quotas were introduced for them as well. For example, a service advisor might be given the goal of selling a certain number of front-end alignments or brake repairs during each shift.42

In June 1992, the California Department of Consumer Affairs accused Sears, Roebuck, and Co. of violating the state's Auto Repair Act and sought to revoke the licenses of all Sears's auto centers in California. The allegation resulted from an increasing number of consumer complaints and an undercover investigation of brake repairs. Other states quickly followed suit. Essentially, the charges alleged that Sears Auto Centers had been systematically misleading customers and charging them for unnecessary repairs. The California investigation attributed the problems to Sears Auto Centers' compensation system.43

In response to the charges, Sears CEO and Chairman Edward A. Brennan called a news conference to deny that any fraud had occurred, and he defended Sears' focus on preventive maintenance for older cars. He admitted to isolated errors, accepted personal responsibility for creating an environment where "mistakes" had occurred, and outlined the actions the company planned to take to resolve the issue. These included:

_ Eliminating the incentive compensation program for service advisors
_ Substituting commissions based on customer satisfaction
_ Eliminating sales quotas for specific parts and repairs
_ Substituting sales volume quotas

According to Brennan, "We have to have some way to measure performance."44

Sears also introduced "shopping audits" of its auto centers in which employees would pose as customers, and Brennan published a letter of explanation to the company's customers in The Wall Street Journal and USA Today on June 25, 1992.
Note that the compensation system for mechanics, based on number of tasks performed and parts replaced, was maintained. In the summer of 1992, Chuck Fabbri, a Sears's mechanic from California, sent a letter about Sears' wage policy for mechanics to U.S. Senator Richard Bryan. Fabbri said:

It is my understanding that Sears is attempting to convince your committee that all inspections in their auto centers are now performed by employees who are paid hourly and not on commission. This is not the case. The truth is that the majority of employees performing inspections are still on commission...

The Service Advisors ... sell the repair work to the customer.... The repairs that they sell are not only based on their inspections, but to a larger degree based on the recommendations of mechanics who are on...

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