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Ethics in Business

Problem 1-7 Ethics in Business [LO4]

Consumers and attorney generals in more than 40 states accused a prominent nationwide chain of auto repair shops of misleading customers and selling them unnecessary parts and services, from brake jobs to front-end alignments. Lynn Sharpe Paine reported the situation as follows in "Managing for Organizational Integrity," Harvard Business Review, March-April, 1994:

In the face of declining revenues, shrinking market share, and an increasingly competitive market . . . management attempted to spur performance of its auto centers. . . . The automotive service advisers were given product-specific sales quotas-sell so many springs, shock absorbers, alignments, or brake jobs per shift-and paid a commission based on sales. . . . [F]ailure to meet quotas could lead to a transfer or a reduction in work hours. Some employees spoke of the "pressure, pressure, pressure" to bring in sales.

This pressure-cooker atmosphere created conditions under which employees felt that the only way to satisfy top management was by selling products and services to customers that they didn't really need.

Suppose all automotive repair businesses routinely followed the practice of attempting to sell customers unnecessary parts and services.
Required:

How would this behavior affect customers? How might customers attempt to protect themselves against this behavior?

How would this behavior probably affect profits and employment in the automotive service industry?

1. If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, which of the following would happen? (Answer "Yes" or "No")
__________ Most customers would eventually figure this out.
__________ They would be reluctant to accept the word of the service representative that a particular problem needs to be corrected-even when a real problem exists.
__________ They would not have the work done.
__________ Customers would learn to diagnose and repair problems themselves.
__________ Customers would hire an independent expert to verify that the work is really needed.

2. If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, which of the following would happen with respect to employment and trust in the automotive service industry? (Answer "Yes" or "No")
__________ Increase demand for mechanics.
__________ Increase the number of people who do repairs themselves .
__________ Reduce the trust in the auto repair industry, resulting in a decline in demand.

Solution Preview

1.
Yes Most customers would eventually figure this out.
Yes They would be reluctant to accept the word of the service representative that a particular problem needs to be corrected-even when a real problem exists.
Yes They ...

Solution Summary

This discuss the implication of Ethics in Business

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