3t of his life, Michael J. Stumpf con- himself a walking “advertisement , Roebuck & Co. “We had an all- relationship with Sears,” said ja 82-year-old industrial video pro- ‘eho lives in San Francisco. But when, sée brought their 1987 Ford to a local tomotive Center for an advertised sarut job, she ended with 2 $650 repair Hernandez had a similar experience. 1991, she went to a Sears Auto- ‘Genter in Stockton, California, to buy for her 1986 Honda Accord. The who worked on the car told her also needed new struts, at a cost of Hernandez, 58, sought a second Another auto-repair store told her were fine. Furious, Hernandez to Sears, where the mechanic adm is was wrong. “I kept thinking, “how many other people has this 107" tly it happened to many others. 10, 1992, California's Bureau of lve Repairs (BAR) moved to revoke ding permits of 72 Sears auto service Corporations and Businesses, Large and Small Case Study Sears Auto Shock 149 Ronald M. Green “There's a saying, “You Can Count on Sears."I'n here to tell you in auto pair you cannot.” -JIM CONRAN, DIRECTOR, CALIFORNIA DEPARTMENT OF CONSUMER AFFAIRS, PRESS CONFERENCE, JUNE 13, 1992." centers in the state, Announcing the results of an 18: month-long undercover investigation into repair practices at 33 Sears auto centers throughout the state, BAR accused Sears automotive operations in California of fraud and willful departures from accepted trade standards BAR launched its unprecedented sting operation in December of 1990 after receiv. ing 250 consumer complaints about Sears— enough to suggest a pattern of abuse. During this period Sears advertised brake service spe- cials ranging from $48-$58 that had attracted many customers. Between December 1990 and December 1991, state workers posing as motorists took unmarked state cars for brake inspections 48 times at 27 Sears outlets. Before taking the cars in, stare mechan- ics took apart the brakes and suspension, inspected and marked the parts, and had them photographed and catalogued. Worn brake pads were purposely placed on most of the cars The cars were then trailered to afew blocks from the targeted Sears outlet and driven there by the undercover employee. According to BAR investigators, in 42 out of 48 runs Sears. employees recommended and_per- formed unnecessary service or repairs. The 1994, Ronald M. Green, Reprinted with permission,150 Corporations and Businesses, Large and Small highest overcharge occurred at the San Bernadino store, where the bill came to $550. On average, according to the state, consumers were bilked $250 each. Many of the replaced parts were nearly new. (On several occasions, BAR officials said, the cars emerged from Sears in worse or unsafe condition, with loose brakes or improperly installed parts. According (o state investiga- tors, Sears service personnel were not above ‘using scare tactics to up the bill. According to Jim Schoning, BAR's chief, one of the under- cover operators was told that the front calipers on his car were so badly frozen that the car would fishtail if the brakes were applied quickly. “The calipers were in fine working order,” Schoning said.* ‘The investigation was a serious blow to Sears, whose auto service business was the largest in California, Nationwide, Sears $3 bil- lion service and parts business was also threat cened by similar investigations being launched in New Jersey, New York, and Florida. Overall, auto repair and service accounted for $2.8 bil lion or 9% of the retail giant’s $31.4 billion in revenues in 1991. What led a company that was once regarded as one of the nation’s most enlight- ened retailers into such difficulties? One fac- tor, in the minds of some observers, was @ change of compensation policies in Sears auto service and some of its other retail busi nesses. In 1990 mechanics, who had previ- ously been paid at an hourly rate, were told that commissions would replace a part of their compensation. A manager formerly earning, say, $15 an hour would now receive $12 an hour and was told to make up the dif. ference through increased sales of services and parts. Investigators at BAR found that Sears also instructed employees to sell a certain number of repair or services during every eight-hour work shift, including a specified number of alignments, springs, and brake jobs. Employees were pressured to sell a specified number Perry of shock absorbers of struts for every hour denied worked: If they failed to meet their goals, 850 auto Sears employees told investigators, they often. sales gos received a cutback in hours or were trans- recomm ferred to other Sears departments One Sears Other § ‘mechanic described his experience under this Pany ro system as “pressure, pressure, pressure to get sales ady the dollars.” tomers | Changes in compensation policies were Because, part of Sears overall effort to improve its sag- mainten ging profit posture. During the late 1980s problem: Sears had been hurt by a national recession efforts o and new competition from discount outlets or sales and an emerging industry of specialized mail Roy Lieb order businesses. In 1990, Sears announced Californi 4 40% drop in earnings and a $155 mik charged, lion write-off. Its Merchandise group. which decision | includes auto centers and appliance sales, pructune dropped 60%. During this period Sears the consu Roebuck’s new Chairman Edward A. Brennan Whoes scrambled to shake up the retail giant, slash- posse ano yet uondasiad ayy OF Peay ‘pinoo rey Suypdue areuruy> 09 wes -sjanat uon>eysnesstouorsn9 yi 405 [>t iad aotias prenor or papuaiu welSord rssruntnoouon ¥ Aq paseydas aq pinow Aaxp n pasunoute 94] 09 ue 219m stasis tue paneaso pey sjeo8 Sp -uoduioo aantiaout s,curedusoo aup ep. Pap22 o> ueuuaig ‘sromoisns st paSuown Ate ‘aanuigour atp veip paztean mou AuedH0> 2p yer pres ueTud “SSeS AHAB JO RRL dun 40 sjeo8 01 worn pil jo 8594 91R tooq anny Kear, sayestar oxp TIP BUNEAS ‘pauana90 soeisfus 24948 TUSMTOSAUS ae uresfioud ones -uonuartn pey sreag wap Aap MENTO DIUM “oFeaIyD UE JouDIaTUOD SMALE PLOY Uweuuaag ‘a paenpyy WeULTEYD Seay IO} ur 90g puE AqfeuoReN y%CT UMP s191U99 foume si UL Sojes xp ‘tone] YOM e UE ST {Castodsoa ypns 90 36) Z WANNA 398) ‘SHALL su yo dureur sq wisiondays Jo ainsvaut © (pis tot Xpuaredde sew pes sn s12WIOISNO SI arejou 01 1y8nos djjeuonuanut pey stredui0 £09 pure goo “ses ‘ojo asnnoaxg Jor pure meULTES, NvNNa ‘one feu nok wrs2u09 Aue anoro4 on sounn ano op {4 29 a8pa1d 1 aia omy sieag pe20} amo% 4q dors 10 1Je9 01 nok afin ‘9h "ie 4noX UO pautiopiad aataias moqe uonsanb 40 rqnop Aue aveq nos J] PEL Aouoyy “Ino, 10 posiuereng uoN>eysNeS usaq Kempe “sey YsRINITEY s,s1EOg ‘suonesynia> (asy) 22uayooxg 2914195 axnowomy 000'FT Iso aaey Suepprupar mmo “uresosd Sut “uyen asisuaix> UNO sno 01 VOHIpPE UL ‘avak gg 4940 40) siedou Ome WONDEISTES aauiorsng Buypword woaq sey sits pouuiojiod yom ype aanmeren) “p> ‘aquoyine nox sipedos {fu0 WHO}IOd ee a a a ae gee Ee sx9ui0}sn9 seas 1 wena -avewns> uonuia v anedang % capedau at 20794 NOK yp SHED“ +011 food todas an snag aun 4q pa8a} -eyp Suaq st aanaesd Ansnput pardaove si, ‘yes Soup az0jaq ‘a1eudordde way ‘sued ‘usom jo itawoaeidar sopnput sty, “suedor ‘auminj spsoo 240u prone or pure “Kages {no{ aansu djay 01 soanseour ooueuavuteUt ‘anuanasd pustui0sa4 01 sn Uo Af21 NOX ‘srvak go] 10y sn UNOS 9Aey sroworsn9 isn at a1eIOW Aqpeuonuavut Jayot pinom aM Te MOY oF Nok TEN sivag ‘f9s9m0F] "pauino90 aney AeUE SOSH ‘ouope euuiogtfes us 1296 ase] S9DHAIDS SHOMLION -sn9 aanoulomne wort % ,1980. PIM “BORED uy siamag omy sieag jo soonzeid ou ‘Suquzaoui09 sofieyp apeur aweday aanowioany jo nraing euosED 2M “BOT 2uNf UO, 07 299991 uado uy Tews pur a8ue7 sossoursng pue suomeiodiog, 3S154 Corporations and Businesses, Large and Small In November Sears announced a final aspect of its settlement effort: a yearlong nationwide offer of $50 coupons, redeemable for any Sears product or service, to any cus- tomer who bought one or more of the five commonly sold Sears auto parts between August 1, 1990 and January $1, 1992. Given the nearly 1 million eligible for the coupon, Sears could pay out as much as $46.7 million, although it expected to pay out far less. As the year ended and Sears top managers tuned their attention back to the company 's long-term struggle back to profitability, it was not clear what impact the auto center flap would have. In that struggle against new competitors, Sears had one major asset: its century-old reputation for quality and integrity, Ian Mitroff, co-director of the University of Southern California Center for Crisis Management, put the problem facing the company succinctly: “If I put my trust in you and you betray me, that creates a very deep response.” NOTES 1 Jody. Quin 1992), 90 i Flynn, Christina Del Valle, and Russell Mitchell “Did. Sears Take Other Customers for a Ride?” Busnss Wek August 3, 1992, 24 3. Kevin Relly and Erie Schine, “How Did Sears Blow This Gasket Busines Wek, June 29, 1992, 38 4. UPL June 1, 1992 5. Lawrence M. Fisher, “Sears's Auto Centers to Halt ‘Gommissions,” Th Naw York Times June 2, 1002, DS. 6, Flynn etal, "Did Sears Take Other Customers fora Ride?” 25 “Repair Job,” Incentive (October 1. Relly and Schine, *How Did Sears Blow This Coste 38 4. Join Schneier an Jim Mae, “Sears Auto Cente Charged with Fraud California Probe “Flawed Resale Says” Chiag Td, ne 12,19, 1 ®t Fyn etal, “Did Sears Take Other Gastomers fora Ride 2 Richard W. Stevens, si Hom Did Da ‘The NewYork Ties Jone 17,18, Dh Fisher, “Sears ito Centers to Halt Commision” Dl Washington Pat, uly 28, 1992, Sle, Quinn, Repair Job” Inez (Cctber 192), un, 1, 18, 4 Case Study The New Year’s Eve Crisis! Itwas Monday morning, New Year's Eve Day, 2001. On a day that many people were enjoy- ‘ing at home, Mike Valenti was in his office at Michael's Homestyle Pasta, Since he had acquired the Southern Pasta Company on December 10th, he had been learning the business, trying to get his arms around it, as he described it. Distance was a factor: Michael’s headquarters and plant were in William Naumes and Margaret J. Naumes Connecticut, while Southern was located in Florida. Mike would have liked to be in ‘Tampa, working directly with his new employ: ces and trying to integrate the two comp nies’ cultures, but his wife was expecting their third child in early January and he needed to stay near home. In the due diligence period leading up to the purchase, it had seemed as though a new problem developed every week. Copyright © 2005 by the Case Reach Journal and Wiliam Naumes and Margaret). Naumes. 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