New State Probe of Sears Could Lead to Suit : Auto repair: An investigation by the attorney general could lead to civil action seeking monetary damages. Another agency is trying to close the repair centers.

The state attorney general’s office disclosed on Thursday that it is investigating Sears, Roebuck & Co.’s auto repair centers in California for alleged customer rip-offs. Sears denied allegations against it.

The probe, the third involving Sears’ California auto repair operations, could lead to a civil lawsuit and fines or other monetary damages against the nation’s second-largest retailer, said Herschel Elkins, California’s deputy attorney general.

The disclosure came as the state Department of Consumer Affairs formally took legal action to revoke Sears’ license to perform auto repairs in California. The unprecedented move could drive Sears out of the auto repair business in the state, where it is the largest single operator with 70 repair shops.

The Consumer Affairs Department, however, does not have the ability to seek monetary damages and other legal remedies, as does the attorney general’s office. The attorney general’s office is trying to assess how many people may have been victimized by Sears based on repair records that Sears has turned over to the agency, Elkins said.

The attorney general’s office had been in settlement discussions with Sears that broke off last Thursday for unspecified reasons, Elkins and Sears officials said. However, settlement discussions could resume, both said.

Sears on Thursday attacked the Consumer Affairs Department investigation that led to the license revocation proceedings. The retailer, saying the probe was flawed, vowed to fight allegations that the chain systematically overcharged auto repair customers.

Sears will fight the allegations in license-revocation proceedings that now go before a California administrative law judge and could take at least six months to resolve.

“There may have been some honest mistakes,” said Dirk Schenkkin, a San Francisco attorney and outside counsel to Sears. “But there was no fraud.”

At a press conference in Van Nuys, Consumer Affairs Director Jim Conran said the department’s case against Sears is solid.

“They can say what they want,” Conran said. “You can see the places where they screwed the public.”

The Times reported Thursday that the Consumer Affairs Department conducted an 18-month investigation into selling practices at 33 Sears auto repair centers across the state. The department said undercover agents who brought cars to Sears were charged an average of $223 for unneeded repairs.

The attorney general’s probe is directed at similar allegations of overselling, Elkins said.

The Consumer Affairs Department blamed the overselling on intense management pressure on auto center employees to meet sales quotas, a charge Sears vigorously denied.

News of the department’s actions helped to drive Sears stock down 50 cents per share Thursday on the New York Stock Exchange, where it closed at $41.375.

Retail industry analysts said, however, that they believe that the department’s action will have a minimal financial impact on Sears.

“Sears has said they are going to fight this tooth and nail,” said Terrence J. McEvoy, an analyst with Janney Montgomery Scott, a Philadelphia brokerage. He said the likelihood of Sears losing “is small.”

As previously disclosed, Sears is also under investigation of its auto centers’ practices by the Contra Costa County district attorney’s office. Sears department stores are not a target of any of the investigations.

Bernard Sosnick, an analyst with Oppenheimer & Co. in New York, said the charges against Sears are ironic because the retailer’s auto centers had been leading the firm’s strategic turnaround.

He said Sears streamlined its operations to concentrate on five basic types of repairs and hired an additional 1,000 people. Consumer complaints overall had plummeted, he said.

“The irony is that these charges strike at the very heart of everything Sears was trying to accomplish,” Sosnick said.

He said the allegations were serious. “Sears is almost built on its guarantee of satisfaction. Anything that undermines that trust is very serious.”

Schenkkin, Sears’ outside counsel, said the department’s undercover investigation was faulty because the agency used older cars with signs of wear that tricked Sears’ employees into thinking certain repairs were needed. He gave these examples:

* At least two cars received new master cylinders because the department had aged the parts with acid to look old. In addition, there were signs that brake fluid had leaked from faulty master cylinders replaced by the department before taking the cars to Sears.

* In one case, an undercover agent was charged for new headlamps that weren’t installed because the cashier pushed the wrong inventory code on the cash register. As a result, the undercover agent wasn’t charged for more expensive brake work that was performed.

* A station wagon with a trailer hitch received new springs because the under body of the car looked scratched from hauling a heavy load. The department contends that the springs in the station wagon were in top condition.

Schenkkin said Sears interviewed all employees involved in the controversial repairs and is satisfied that there was no wrongdoing.

“I think it is disgraceful that they (the state) is trying to portray this as fraud,” he said.

Schenkkin denied the department’s allegations that Sears auto center employees were driven to sell by a quota system. Schenkkin said Sears established selling “goals” for employees that he said were very “modest” and “easy to attain.” He said he could not cite an example.

Schenkkin said the goals were intended to motivate employees “to be vigilant” in performing repairs. He said employees who don’t meet the goals probably aren’t providing enough “preventive maintenance” on the cars they service.

Schenkkin said the goals were established on an annual basis although he acknowledged that employees were given weekly quota cards. He said the quota cards were intended as guidelines.

But several Sears employees who contacted The Times on Thursday said their pay was based on meeting the goals and that they did sell customers unneeded parts.

One service adviser at a Sears in Orange County said he asked for, and finally received, a transfer to another job because he “couldn’t stomach the pressure to sell.”

“It wasn’t right,” said the longtime Sears employee who requested anonymity. “You sold things to people to meet your quota for that day, but you didn’t feel right doing it.”