Aamco

PERHAPS IRONICALLY for a company that stresses trust in its advertising, this 700-shop transmission repair franchise has a 35-year history of defrauding consumers with unneeded overhauls and unhonored warranties.

Founded by high school drop-out Anthony A. Martino in 1959 as a shop that specialized in repairing the newly available automatic transmissions, AAMCO went national as a franchise in 1962 with the help of franchising expert—and later company president—Robert Morgan. As with many franchise operations, AAMCO's ideal franchisee was not a shop owner with relevant technical skills, but an energetic, inexperienced entrepreneur who was willing to learn a system. Arthur Glickman reports in Mr. Badwrench that AAMCO actively sought non-mechanics to operate its franchises. The AAMCO system emphasized bringing customers in with promised low prices, then selling higher-priced services. A sales manual from the late 1960s, about the time that Morgan bought out Martino, is quoted by Glickman as stating: “It is AAMCO's policy that the purchase of an AAMCO custom rebuilt transmission be suggested to every customer who enters your shop.”

By 1970, AAMCO franchisees had followed these instructions so thoroughly that the parent company had to sign a consent agreement with the Federal Trade Commission (FTC) promising no more deceptive advertising or bait-and-switch sales tactics. Fourteen months later, AAMCO admitted to 233 violations of this order. Over the next 15 years, a series of undercover investigations in 17 states found that AAMCO shops consistently sold unneeded, and sometimes unperformed, transmission rebuilds. These investigations culminated in a 1987 14-state settlement in which AAMCO promised to implement a “secret shopper” program that would prevent individual AAMCO shops from inflating repair costs.

The most common complaint against AAMCO was that customers whose cars needed minor repairs were sold a complete transmission rebuild or replacement, with a lifetime warranty, at a cost about eight times that of the needed work. Methods of motivating car owners to pay for extensive transmission work ranged from the classic “metal shavings in the pan”—promoting a common, harmless condition as cause for alarm—to showing customers damaged parts from other transmissions kept for the deceptive purpose.

Many customers complained later that their transmissions were in worse shape after the repairs than before, and that AAMCO attempted to charge for additional repairs rather than honoring their warranties. Complained Anita Rubin, who bought the lifetime warranty for her five-year-old truck only to have AAMCO fail to fix it four times, to the New York Times: “What are they advertising? It doesn't say it's a lifetime warranty as long as it doesn't break down.”

By 1989, some AAMCO franchisees were so frustrated that they considered filing a class action lawsuit against the company, alleging that the company failed to provide technical support and harassed franchisees who refused to sell unneeded repairs to consumers. The matter was settled out of court.

[Page 4]AAMCO continues to offer customers the option of buying a lifetime warranty on transmissions. The corporate internet site boasts that CEO Keith Morgan, son of Robert Morgan, has since 1992 led the company to its highest profits ever.

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