Facing revocation of its license to repair cars in California and damage to its national reputation for service, Sears, Roebuck & Co. on Monday scrapped an aggressive incentive program linked to consumer rip-offs at its automotive repair centers.
Sears Chairman Edward A. Brennan, appearing somber and contrite, told a news conference in Chicago that it was a mistake to reward automotive service employees for meeting strict sales quotas on shocks, springs and other components.
“It seems to me our incentive compensation programs created a wide opportunity for mistakes to be made,” Brennan said. “If the opportunity is there, you can be almost certain mistakes have been made.”
Brennan said the giant retailer is discontinuing commissions for automotive service employees and ditching its controversial sales quotas to help restore consumer confidence. Automotive sales at Sears have plummeted 20% in California and 15% nationwide in the two weeks since the state Department of Consumer Affairs accused Sears of overcharging consumers.
Brennan said there was no evidence that any consumer had been overcharged, and continued to insist that California’s investigation into Sears’ auto repair business was flawed. He said that a review of the charges by an outside law firm--and his own personal review over the weekend--uncovered “no systemic problem.”
But, he said, “we want to eliminate anything that could even lead to the perception that our (employees) could be motivated to sell our customers unneeded repairs.”
The charges followed an 18-month investigation by the California Department of Consumer Affairs in which Sears allegedly charged undercover agents an average of $223 for unneeded repairs. The department linked the overcharges to Sears’ decision three years ago to slash employees’ hourly wages and pay them commissions.
The problems expanded beyond California last week as New Jersey consumer protection officials cited six Sears auto shops for recommending unneeded repairs.
Though it is fairly common for automotive service employees to receive commissions, it is far less usual for service employees to meet specific sales quotas. Consumer activists have said such a practice opens the door to deceptive sales practices because consumers have no way of objectively judging whether a car needs repairs.
Brennan said Sears will return to paying automotive employees an hourly wage only and are eliminating contests that rewarded top-selling workers with bonuses and other prizes. Brennan said that while sales quotas for specific parts are being eliminated, employees must still meet volume quotas, said to be $147 an hour.
“We have to have some way of measuring performance,” he said.
Consumer Affairs Director Jim Conran called Sears’ announcement a “positive step,” but added that the department would continue to press its case against Sears. He said he found Sears’ decision to retain a sales quota confusing.
“It’s not my job to tell them how to run their business, but . . . they are sending employees an inconsistent signal,” he said.
Besides changing its compensation system, Sears announced other initiatives that drew praise from management consultants who had initially accused Sears of mishandling the crisis. Brennan said Sears would “aggressively pursue, help fund and organize” an effort to development standards for auto repairs. The effort would include consumers and government officials, as well as industry representatives.
In addition, Brennan said Sears would hire a third party to gauge performance at its auto centers to see that company policies and standards are met. He said Sears is in the process of hiring firms to perform the quality tests, which would be conducted randomly nationwide. Sears also sent a copy of its auto repair standards and practices to attorney generals in every state, inviting comparison to state repair guidelines.
“This is very positive. Now they are acting like a multibillion-dollar corporation,” said Gerald C. Meyers, a Bloomfield Hills, Mich., consultant who teaches a course on crisis management at Carnegie Mellon University. “It is late, but it is never too late to build credibility.”
He said Sears failed to go “the final step: give anybody who has a question their money back in full . . . above and beyond their usual policy. It would cost them some money, but it would put them on the side of the angels.”
Brennan said Sears has a longstanding money-back policy in place. He said that automotive refunds haven’t increased since the state of California took action against the retailer.
Ian Mitroff, co-director of the University of California’s Center for Crisis Management, also praised Sears’ initiatives. He said, however, that Sears has not asked critical questions about why the company failed to uncover possible overselling on its own.
“One thing about crises is that they all leave early warning signals,” he said. “They have to ask why the system wasn’t designed to pick it up.”
At least one expert questioned the need for industry standards. Mitch Schneider, a Simi Valley auto mechanic and president of the Federation of Automotive Qualified Technicians, said each car maker sets standards for every vehicle. “There are already industry standards,” he said. “I guess that is how they go from wearing a black hat to a white hat.”
Sears stock closed Monday at $38.375 in New York Stock Exchange trading, up 25 cents. Though the auto center crisis has hurt Sears’ share price, analysts said the episode would not have a significant financial impact.
Tracy Shryer in Chicago contributed to this report.