1996 — A look into the past: Goodyear settles service fraud suit

(Editor's Note: This story is part of our #TireBiz30 in which we feature one archived story every day of September to celebrate Tire Business' 30th anniversary. Each story represents one of the most relevant news story published in our pages for that year.)

AKRON—Heading off what could have proven to be a lengthy and expensive court battle, Goodyear has agreed to settle a class-action lawsuit alleging the company engaged in widespread automotive service fraud.

While denying any wrongdoing, the tire maker will offer consumers at least $70 million in discounts toward future service work at its more than 800 company-owned service centers nationwide.

The proposed settlement, which attorneys on both sides have accepted, is subject to approval by the U.S. District Court in Trenton, N.J., which is scheduled to hear the matter July 15.

Also as part of the proposed settlement, the company has agreed to pay $3.85 million to cover the plaintiffs' attorneys' fees.

If approved, the settlement could put to rest a lawsuit filed Oct. 14, 1994, on behalf of Eric Charles of Parsippany, N.J., and all consumers who had service work performed at Goodyear-owned stores between Oct. 1, 1988, and Dec. 31, 1995.

The lawsuit accused Goodyear of using "a production volume incentive/quota compensation system" that induced employees to oversell products and/or unnecessary parts and services.

Goodyear's practices were reinforced, the suit charged, by "intense corporate pressure and threats to employees imposed by regional Goodyear managers to satisfy strict quotas on replacement of high-margin automotive parts" and services such as alignments, tires and brake drums.

The company's vehicle preventive maintenance schedule also came under fire as being "contrary to carmakers' scheduled maintenance and, in some instances, several times shorter" than that recommended by manufacturers.

Maintaining the litigation is "without substantial merit," the company said the suit's resolution will permit it to "reaffirm its commitment to its customers.

"Goodyear continues to dispute the allegations, but the nature of the case would have involved protracted and costly proceedings. Even if Goodyear had prevailed, it would not have justified the time and expense of the litigation. . . ."

Attorneys for the plaintiffs did not return phone calls from TIRE BUSINESS.

Also as part of the settlement the tire maker agreed to either continue or institute policies to protect its customers from fraudulent auto service practices.

That pledge comes in light of a May 1994 "Customer Trust Program" introduced by Goodyear after customer complaints in 1993 that the company's service centers in Minnesota sold unneeded products and services and performed unauthorized repairs.

Goodyear's agreement with the Minnesota attorney general to stop the practice of paying incentives and "spiffs" to its service shop employees in the state ended that inquiry.

The company also began paying all its technicians a base hourly rate with increases based on their commission history.

In a recent bulk mailing to approximately 4 million Goodyear customers nationwide, the company spelled out the terms of its settlement of the class-action suit.

For example, consumers who spent less than $100 at a Goodyear center would receive a coupon worth $5 on work or merchandise; those with bills of $1,000-$2,000 would be entitled to a $50 coupon; bills in excess of $2,000, a $100 coupon. The vouchers will expire after 24 months.

Additionally, Goodyear vowed:

To adhere to ethical and professional business practices and reaffirm existing corporate policies and procedures dealing with the proper treatment of customers;

To provide customers with appropriate reasons why service or repairs are recommended prior to work being done;

To notify customers of the existence of Goodyear warranties in effect on any Goodyear part or merchandise which is worn or in need of replacement at the time of the customer's visit;

To continue for four years to warrant, in writing, its auto repair workmanship for a period not less than 90 days;

To create and establish continuing education programs for technicians;

To train personnel concerning this policy, and supervise its implementation;

To continue for four years a retail sales ban on non-tire non-wheel product/service-specific financial incentives, and continue for four years a ban on manufacturers'/vendors' sponsorship of spiffs for Goodyear service personnel; and

To continue for four years an informal dispute resolution process for customers.

Goodyear also promised to introduce a "mystery shopper" program or "other internal unannounced audit procedures to review compliance" with its policies and procedures "for the proper and appropriate treatment of customers."

"People aren't aware we're already doing most of this voluntarily," a Goodyear spokeswoman pointed out.

Asked whether issuing coupons could in fact draw consumers into its centers for even more service work, she replied: "It's not our policy to recommend unnecessary repairs, so we're looking at this not so much that the company will get something, but that it's an opportunity for us to reaffirm our commitment to superior auto service with our customers.

"What's most important is that the customers are getting something."

That's not, however, how the Washington-based Center for Auto Safety sees it.

"It's a coupon settlement. They call it a cash-equivalent coupon settlement, but a coupon's a coupon-it's not cash," said Robert Graham, staff attorney for the center.

Because the coupons can only be used at Goodyear-owned outlets, Mr. Graham said they're "of dubious value."

"Essentially, you get scrip or some sort of credit to use at a place where you've been defrauded or already gotten bad products."

Offering coupons instead of cash lessens the financial hit a company may take, as consumers often tend to discard or forget to use them, he said.

"You've got to look at coupon settlements very, very carefully," Mr. Graham advised, "because odds are somebody's trying to pull the wool over your eyes. Yes, it could mean more sales for Goodyear."

Once it studies the settlement more closely, Mr. Graham said the Center for Auto Safety will decide whether to challenge it.

Last year the center successfully overturned a class-action settlement involving General Motors Corp. GM offered owners of certain pickup trucks, with gas tanks mounted outside the frame, a coupon that would have been worth $1,000 toward the purchase of a new truck. On the other hand, the lawyers were to get $9.5 million.

The appeals court-the same one that will oversee the Goodyear case-criticized the GM settlement because of the amount the lawyers were to receive.

Even if the court approves the Goodyear proposal, Mr. Graham noted that it can still be appealed and may well have enough momentum to make it to trial.