Midas Inc., best known for its automobile muffler repair business, provides its products and services through hundreds of franchised dealers throughout the U.S. Although Midas offers other auto services, such as brake replacement and suspension system repair, mufflers still account for the majority of the firm’s sales. Perhaps the most important reason for this is Midas’s famous life time warranty on its mufflers. Consumers who have their muffler replaced at a Midas dealer are entitled to a free replacement if anything goes wrong or even if the muffler wears out for as long as the customer owns the car. Midas has traditionally relied on the honor system where the dealer’s word alone was sufficient to get credit from Midas for muffler replacements under the warranty. But Midas wants to change this system to a more stringent one requiring dealers to return the replaced mufflers to verify that they are indeed defective or worn out. The dealers are up in arms about the new policy because they think it will limit their flexibility in dealing with their customers and thereby undermine goodwill. What do you think might have triggered Midas’s new policy? Do you think the new policy will affect dealer behavior? If so, how?
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