In what is believed to be the largest settlement ever of its kind, Sears, Roebuck & Co. on Wednesday said it will distribute up to $46.6 million in coupons to disgruntled customers nationwide as part of its settlement of auto repair fraud charges in California.
Sears also disclosed that California is placing its 72 auto centers in the state on an embarrassing three-year probation. The state could suspend Sears' auto repair license for a month if the retailer violates its probation by charging consumers for unneeded repairs.
Sears had faced revocation of its license to repair cars in California, where it is the largest single operator of repair shops. In June, the state Department of Consumer Affairs accused Sears of systematically ripping off California consumers after an unprecedented 18-month undercover investigation. The department said Sears charged its agents an average of $223 for unneeded repairs.
Sears has consistently denied wrongdoing. The company said it decided to settle the case to avoid the expense and uncertainty of prolonged litigation.
The settlement was a victory for the embattled Consumer Affairs Department, which briefly faced elimination during the state's budget crisis. The settlement is the largest in the department's history.
Consumer Affairs Director Jim Conran said he hoped that the Sears case would signal other repair shops in California that the department "takes its consumer protection role very seriously." Conran said his agency will continue to monitor Sears, using undercover agents to make sure probation is not violated.
"Sears is on a very short leash," he said.
The settlement affects consumers who had auto repairs at Sears from Aug. 1, 1990, to Jan. 31, 1992, roughly the period covered by the state investigation. The settlement also covers 19 class-action suits filed against the retailer since California filed its charges.
Key terms of the settlement are:
* Distribution of five $10 coupons to any consumer nationwide who purchased any one of the following: a pair of brake calipers, a pair of coil springs, a pair of shock absorbers, a master cylinder or an idler arm. The coupons, which will be available after Nov. 1, are good for any merchandise Sears sells. Sears said 933,000 transactions were involved nationwide.
The state had charged that Sears set strict quotas for those parts, which led to overselling. After the auto repair scandal broke, Sears eliminated the sales quotas, acknowledging that it created an environment in which "mistakes were made."
* Full refunds for California consumers who believe that they were charged more than $50 for unneeded repairs. The refund is on top of any merchandise coupons the customer may be entitled to.
* Payment of $3.5 million to the state to cover the costs of investigation by the Department of Consumer Affairs, the state attorney general's office and the Contra Costa County district attorney's office. The latter two agencies conducted concurrent investigations.
* A $1.5-million contribution to auto mechanic training programs at California's community colleges. If the coupons distributed to California consumers are less than $3 million, Sears will also contribute the difference to community colleges.
Sears estimated the cost of settlement, excluding customer refunds, at $15 million after taxes. In an interview, James D. Thornton, national business manager-automotive for Sears, said it is impossible to estimate how many consumers will demand full refunds. He said that since the scandal broke, refund requests have risen.
The settlement only partially reflects what the auto repair case has cost Sears. The company said Wednesday that auto repair sales are off 15% nationwide since California filed its fraud charges, and that sales are down 20% in the state. Based on those estimates, the scandal has cost Sears $700,000 a day.
Thornton said sales were also off in the chain's stores.
"These last few months have not been easy for Sears," Charles F. Moran, the firm's senior vice president and chief administrative officer, said at a press conference in Sacramento on Wednesday.
"We hope and trust that all we are doing to right this situation will give our customers reason to be even more confident when they visit Sears auto centers in the future," he said.
Moran said the coupon program was in part intended to bring disenchanted customers back to Sears.
The coupon program is designed to keep the amount of money Sears must distribute to a minimum. The company is distributing the coupons in denominations of $10, rather than $50, to reduce the amount of change returned in a transaction.
Consumer advocates have long criticized such settlements because they do not by themselves provide full restitution and can, in some cases, boost sales at a retailer.
"In an ideal world, you would want to return cash," said Ken McEldowney, executive director of San Francisco-based Consumer Action. He said, however, that he was not too troubled by the coupons because they do not require consumers to spend their own money.
Conran said that it was not customary to refund cash in consumer fraud cases, and pointed out that consumers can still get full refunds.
McEldowney said that, overall, he is pleased with the Sears settlement because it provides something of value to consumers.
Times staff writer Dan Morain in Sacramento contributed to this story.
What's in It for Consumers
Here are details of Sears' coupon offer to consumers:
Who qualifies: Any consumer who purchased at least one of the following items from Sears auto centers between Aug. 1, 1990, and Jan. 31, 1992: a pair of brake calipers, a pair of coil springs, a pair of shock absorbers, a master cylinder or an idler arm.
How to obtain a coupon: Apply for a coupon at any Sears store after Nov. 1. California consumers can also apply by mail at an address to be established later. To apply, a customer must furnish proof of purchase, defined as a receipt, an auto repair invoice or a signed declaration that the purchase took place.
When you can use the coupons: The coupons are good for any product or service at Sears and can be used anytime between Nov. 1, 1992, and Nov. 1, 1993. Refunds will not be given for purchases made with coupons, and the coupons are not transferable.
If you have a question: Call Sears at (800) 659-7057.