Write a response to a letter of Complaint

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Write a response to a letter of Complaint. This can be the letter of complaint you wrote for Assignment 9 or an imagined letter of complaint relative to any one of the case studies in the book.  

 

CASE 13.3 Sears Auto Centers

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On June 11, 1992, the CEO ofSears, Roebuck and Company, Edward A. Brennan, learned that the California Department of Consumer Affairs (DCA) was seeking to shut down the 72 Sears Auto Centers in that state.55 A yearlong undercover investigation by the DCA had found numerous instances in which Sears employees had performed unnecessary repairs and services. Officials in New Jersey quickly announced similar charges against six local Sears Auto Centers, and several other states, including Florida, Illinois, and New York, opened their own probes into possible consumer fraud. In the wake of this adverse publicity, revenues from the auto centers fell 15 percent, and the public's trust in Sears was badly shaken. Sears Auto Centers, which were generally connected with a Sears department store,

concentrated on basic "undercar" services involving tires, brakes, mufflers, shock absorbers, and steering mechanisms. Investigators from the DCA's Bureau of Automotive Repair purchased old vehicles in need of minor repairs and disassembled the brakes and suspension systems. After examining and photographing each part, the investigators towed the automobiles to a shop where they requested a brake inspection. In 34 of 38 instances, Sears employees recommended unnecessary repairs and services, and some auto centers charged for parts that were not installed or work that was not performed. The average overcharge was $235, but in two cases the amount overcharged exceeded $500. Brennan had been notified in December 1991 of early results from the investigation, and

Sears executives negotiated for six months with California officials. The company objected to the state's position that no part should be replaced unless it had failed and claimed that many repair were legitimate preventive maintenance. For example, there is disagreement in the industry on whether brake calipers should be reconditioned whenever the pads are replaced. In addition, some of the automobiles used in the investigation showed signs of damage from worn parts that had already been replaced, thus leading mechanics to believe that repairs were needed. The DCA moved to revoke the licenses of all Sears Auto Centers in the state after the negotiations broke down over details of the financial settlement. California officials charged that the problems at the Sears Auto Centers were not confined

to a few isolated events but constituted systemic consumer fraud. According to a deputy attorney general, "There was a deliberate decision by Sears management to set up a structure that made it totally inevitable that the consumer would be oversold." Until 1991, service advisers, who make recommendations to customers, were paid a flat salary, but subsequently their compensation included a commission incentive. The service advisers were also required to meet quotas for a certain number of parts and services in a fixed period of time. The new incentive system also affected the mechanics, who perform the work on the customers' automobiles. Instead of an hourly wage that was paid regardless of how much work was done, mechanics now received a lower hourly wage that was supplemented by an amount based on the time required to install a part or perform a service. The company determined how long it should take to complete each job, and a mechanic could earn the former hourly wage only by finishing the work in the time specified. Under this system, slow workers would earn less than before, but a mechanic could also earn more by working faster than expected. Commissions and quotas are commonly used in competitive sales environments to

motivate and monitor employees. However, critics of Sears charge that there were not enough safeguards to protect the public. One former auto center manager in Sacramento complained that quotas were not based on realistic activity and were constantly escalating. He said that

"sales goals had turned into conditions of employment" and that managers were "so busy with charts and graphs" that they could not properly supervise employees. A mechanic in San Bruno, California, alleged that he was fired for not doing 16 oil changes a day and that his manager urged him to save his job by filling the oil in each car only halfway. This illustrated, he said, the "pressure, pressure, pressure to get the dollar." The changes in the compensation system at Sears Auto Centers were part of a company-wide effort to boost lagging performance. In 1990, net income for all divisions, including Allstate (insurance), Coldwell Banker (real estate), and Dean Witter (brokerage), dropped 40 percent. Net income for the merchandising group, which included the department stores and the auto centers, fell 60 percent. Brennan, CEO since 1985, was under strong pressure to cut costs and increase revenues. Some dissident shareholders were urging the board of directors to spin off the more profitable insurance, real estate, and brokerage divisions and focus on the ailing merchandising group. Brennan's response was to cut jobs, renovate stores, and motivate people. The overall thrust, according to a story in BusinessWeek, was to "make every employee, from the sales floor to the chairman's suite focus on profits." Some critics of Sears attribute the problems at the auto centers to an unrealistic strategic plan that sought to wring more revenue out of the auto repair business than was possible. Robert Monk, who unsuccessfully sought a seat on the company's board, said, "Absent a coherent growth strategy, these sorts of things can happen." At a press conference on June 22, 1992, Edward Brennan announced that, effective

immediately, Sears would eliminate its incentive compensation system for automotive service advisers and all product-specific sales goals. Although he admitted that the company's compensation program "created an environment where mistakes did occur," Brennan contin-ued, "We deny allegations of fraud and systemic problems in our auto centers. Isolated errors? Yes. But a pattern of misconduct? Absolutely not." He reaffirmed his belief that the California investigation was flawed and that Sears was practicing responsible preventive maintenance. He further announced that the company would retain an independent organization to conduct random "shopping audits" to ensure that no overcharging would occur. Sears also paid $8 million to settle claims in California and gave auto center customers $50 coupons that were expected to cost the company another $3 million. The total cost, including legal bills and lost sales, is estimated to have been $60 million. On September 30, 1992, Sears revealed plans to spin off its three nonretail divisions,

Allstate, Coldwell Banker, and Dean Witter, and to reorganize the merchandising group. A new CEO, Arthur C. Martinez, succeeded Brennan and began a turnaround of the company. In describing his vision, Martinez said, "I want to revisit and intensify the theme of our customer being the center of our universe." A cornerstone of Martinez's strategy, according to the New York Times, was "clean business ethics."