Part 2: Bad Systems Will Cause You to Lose Sight of Customers' Best Interests – Automotive Edition

**SPEAKER_1** (0:04)
The Bliss Business Podcast, the show about empathy, connection, and consciousness in business. Today's episode is brought to you by Zero Company, your paid search, social media, and programmatic ad experts.

**Stephen Sakach** (0:17)
Hello, and welcome back to the show. We are once again diving into scandal today. When business systems go bad, last Scandal Edition, we covered financial services. Today is our Automotive Edition. I'm Stephen Sakach here once again with Tullio Siragusa and Ash Maher. Hey, guys.
We want to look at scandals and systems gone sideways in order to spot trends. Typically, we see a lot of errors with that sole pursuit of profit. We suggest that business ecosystems stay in balance when they pursue love and take an empathetic approach to all involved. So we are jumping in to the automotive industry. So our Automotive Scandal Edition, we're first going to cover auto mechanics, of course. I mean, who among us hasn't felt scammed at one point or another? Tullio, you and I are talking about this. How about you?

**Ash Maher** (1:17)
Oh, yeah, no, absolutely. It's the reason why I only go to the dealers. If they're going to scam me, at least I got scammed by the dealer and so on, right?

**Tullio Siragusa** (1:26)
Oh, the stealers.

**Ash Maher** (1:29)
I don't. If I get the cheaper one, he's going to miss a step, you know, and then it's like, oh, you know, it's on me.

**Tullio Siragusa** (1:35)
Oh, Ash, you go to the stealer.

**Ash Maher** (1:39)
I know. I've been told.

**Tullio Siragusa** (1:42)
I mean, they charge $300 for a tire that should be like 50 bucks.

**Ash Maher** (1:47)
Yeah. I had one guy make an argument that I need to switch my tires out.
And I'm trying to be, his explanation was, oh, imagine wearing the wrong size shoe. Would you wear one shoe one way and then wear another brand shoe? And I was super confused at the analogy. I ended up going to another person, you know, you don't need to switch your tires out at all. That was just them trying to sell you new tires.

**Stephen Sakach** (2:09)
Well, Ash, it's a good transition, Ash, into, we're first looking at a sales quota system gone wrong here. So yeah, maybe there was a sales quota in play there, trying to get you to do some extra work on your car.

**Ash Maher** (2:24)
Yeah.

**Stephen Sakach** (2:25)
So we're talking about Sears Auto Centers. In the early 1990s, Sears Auto Centers were embroiled in a pretty significant scandal involving fraudulent affairs, California Department of Consumer affairs conducting an 18-month investigation and revealing that Sears employees were routinely recommending and charging for unnecessary auto repairs to meet internal sales quotas. Sounds like something we're all familiar with and worry about every time we go to a mechanic. So these practices at Sears were driven by a commission-based incentive system that encouraged employees to upsell service regardless of the actual customer needs. Imagine that. So the impact here, of course, the loss of trust. The investigation found that in 37 cases, Sears recommended unnecessary repairs, sometimes overcharging customers by as much as $550 per visit. This led to lack of trust and widespread consumer dissatisfaction and tarnished their reputation there. There were legal penalties for Sears, $3.5 million fine to the state of California to cover the investigative gated costs and establish a $1.5 million fund for auto repair training programs at community colleges. This is some sort of creative thinking here, trying to help out the situation. The company also offered $50 coupons for people. That's, you know, why would I come back after you've given me a $50 coupon? Nice try.
The financial impact was a 15% drop nationwide in sales for Sears in their auto centers and 20% California. The company had to invest heavily in TV campaign to try and mitigate some of the fallout from the scandal. And then, of course, the negative publicity that came from this had a long-term impact on Sears brand. And not just effecting their auto centers, but the other areas of their business. So the company faced some ongoing scrutiny and really, there's not very many Sears auto centers anymore in the world. Tullio, prior to their demise, what did they do in response trying to mitigate the problems besides the lucrative enticing $50 coupons?

**Tullio Siragusa** (4:57)
Well, before I have to say that, I just want to say, Ash, when you go to the stealer, I can't tell if I'm paying for a therapist or if I'm paying for a mechanic, because their rates are like, astronomically high. Makes wonder if you're in the right business at $300, $400 an hour. But in any case, so what Sears did, I mean, this is the common thread, even in the last show, it's always the compensation structure that gets people to get creative and crazy and do things that they shouldn't be doing because they start focusing on themselves instead of the customer. So the first thing they did is they removed the commission based incentives for service advisors. You would think you're in the service business, but they were like sales guys getting paid commission. So they eliminated that and also implemented a salary based compensation model to reduce the pressure for upselling unnecessary repairs. Right. So, I mean, to be fair, here's someone trying to make a living, take care of their family and their salary might be a little less than it should be for being a service advisor. But you can compensate for it if you upsell stuff. So you turn the service advisor to salespeople and then they're just pushing stuff because they got to pay the bills too. So just a messy situation. So they stopped that.