BUSINESS

The Michigan Daily - Friday, September 20, 2002 - 5A

Time to reflect

Confidence as spending indicator
lower than satisfaction rates

'U' study attributes satisfaction
to 38 percent growth in consumer
spending
By Shabina S. Khatri
Daily Staff Reporter
Consumer satisfaction has beaten out con-
sumer confidence and income changes as the
most influential factor on consumer spending in
the last six years, according to a new University
study.
Business School Prof. Claes Fornell, co-director
of the Business School's National Quality
Research Center, and colleague Jennifer Stephan
of the Claes Fornell International group, collected
and analyzed the preferences, income and spend-
ing habits of consumers from 1995 to 2001 using
three different consumer indexes.
Much to the surprise of some experts, who have
recently been hailing consumer confidence as the
key determining factor in predicting future eco-
nomic trends, the factor only accounted for 9 per-
cent of the variation in spending growth, as
opposed to customer satisfaction's 38 percent.
But Stephan, a research analyst at the CFI
Group, said the empirical evidence makes sense.
"While consumer confidence and consumer sen-
timent are statistically significant predictors, they
tend not to explain the variation in consumer
spending," she said. "It goes back to the logic of

"Satisfaction plays a bigger role in future spending
because it's essentially about gratification. If you're
happy with what you purchased you'll buy it again."
- David Van Amburg
Co-Director, Claes Fornell International

the situation.
"Consumer spending depends not only on your
ability to buy, (which involves) factors such as
unemployment and income, but also your willing-
ness to buy."
Fornell's co-director, David Van Amburg, said a
customer's past and present purchasing experiences
will always affect his future spending patterns.
"Satisfaction plays a bigger role in future
spending because it's essentially about gratifica-
tion. If you're happy with what you purchased
you'll buy again," he said. That is why the Ameri-
can Customer Satisfaction Index, which is com-
piled by the Research Center, "better predicts
future spending than any other single economic
indicator," he said.
Stephan said one possible reason for the dispute
between the significance of consumer satisfaction
versus consumer confidence is the time period in
which the study gathered its figures.
"Our data goes through 2001, before the most

significant problems in our economy started," she
said. "(This means) we know that when the econo-
my is strong, consumer satisfaction is the biggest
factor."
But as for drawing similar conclusions with the
weakening economy, "that is definitely a ques-
tion," Stephan said.
While Van Amburg admits the empirical evi-
dence does not include data from the most recent
economic crisis, he remains confident that con-
sumer satisfaction will continue to predict future
consumer spending.
"You can never account for how cataclysmic
events like Sept. 11 or going to war will affect the
stock markets. In the mid to late '90s the econom-
ic boom - which has now gone bust - this held
to be true," he said.
"Time will tell whether this will hold true for
all times, (but) it's our assumption that customer
satisfaction will (continue to) remain a strong
predictor."

AP PHOTO
Former Tyco chief executive L. Dennis Kozlowksi arrives for a
bail hearing yesterday at the state Supreme Court in New York.

Former]
NEW YORK (AP) - A judge yes-
terday allowed former Tyco Interna-
tional Ltd. chief executive L. Dennis
Kozlowski to remain free on bail
while authorities determine if assets
pledged for his bond are linked to his
alleged multimillion dollar fraud.
State Supreme Court Justice
Michael Obus set a Sept. 27 hearing
to discuss the source of the money,
which prosecutors contend was stolen
from the company and should not be
used for bail.
Kozlowski and former Tyco chief
financial officer Mark Swartz were
charged last week with enterprise cor-
ruption and grand larceny for alleged-
ly stealing some $600 million from

[yco chief still free

Tyco. They face up to 25 years in
prison on each of those charges if
convicted.
Lawyers for Kozlowski and Swartz
had complained earlier this week that
the men's personal assets had been
frozen, and money offered by rela-
tives and others for the bail had been
rejected by prosecutors as possible
proceeds of the crimes with which
they are charged. Kozlowski's ex-
wife, Angie, was expected to post $10
million in cash later yesterday on
Kozlowski's $100 million bond, his
lawyer, Stephen Kaufman.
Swartz's lawyer, James Mitchell,
said his client would post $5 million
security on $50 million with shares of

Tyco stock, either yesterday or today.
Assistant District Attorney John
Moscow told the judge, "When the
bail is posted, we will check it out."
Prosecutors filed criminal charges
against the men soon after the Secu-
rities and Exchange Commission
accused them of hiding huge loans
and other money allegedly taken
from Tyco.
The SEC said Kozlowski used $242
million from an employee loan pro-
gram, established to help workers buy
Tyco stock, to pay for yachts, art, lux-
ury apartments and vacations.
Kozlowski already had pleaded inno-
cent to charges of evading New York
sales taxes on $13 million in art.

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NEW YORK - Stephen Case began AOL Time Warner's
board meeting yesterday as chairman, and he was chairman
when the all-day meeting ended.
In between, despite pressure from some major sharehold-
ers to oust Case and some anti-Case sentiment on the board
itself, the 44-year-old chairman's job status was not on the
agenda and was not even discussed, company spokesman
Edward Adler said yesterday evening.
"As we've repeatedly said, Steve Case is chairman and is
going to remain so. The board conducted regular business
today," Adler said.
The company normally wouldn't say even that much
about a regularly scheduled board meeting held at headquar-
ters in midtown Manhattan, but "all the rumors and specula-
tion forced us to act,"Adler added.
Case declined to be interviewed, as did several of the
other 13 board members.

AOL Time Warner shares sank 56 cents, or 4 percent, to
$12.27 in trading yesterday on the New York Stock Exchange.
The stock has plummeted 74 percent since the January
2001 merger of America Online Inc., the company Case
founded, and Time Warner Inc. Some shareholders blame
Case for overselling the merger and the purported benefits
that the popular Internet service would bring to the media
and entertainment giant.
Two others held most responsible for the merger, former
AOL Time Warner Chief Executive Gerald Levin and Co-
Chief Operating Officer Robert Pittman, already have been
squeezed out of the company.
Yet Case's status "is really not the key issue in front of
the board," said Ajay Mehra, vice president of Columbia
Management, a Portland, Ore., investment firm that con-
siders AOL Time Warner shares undervalued and recent-
ly began buying.

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Citigroup to pay $215M,
largest fraudulent billing
settlement in history

WASHINGTON - About 2 million
consumers who overpaid for mortgages
or credit insurance would get $215 mil-
lion in refunds from Citigroup Inc.
under an agreement to settle federal
charges of deceptive lending.
The settlement - the largest in the
history of the Federal Trade Commis-
sion - would apply to borrowers who
bought credit insurance from Associ-
ates First Capital Corp. in connection
with mortgages or personal loans
between Dec. 1, 1995 and Nov. 30,
2000. Citigroup bought Associates in
November 2000.
FTC Chairman Timothy Muris said
yesterday that the lending industry "for
too long has been plagued by decep-
tion and abuse."
"The potential harm from this type
of conduct - the loss of someone's
life savings or even their home - is
grave," Muris said, adding that the
FTC is investigating complaints
against other lenders.
In mortgage cases, consumers
would get refunds averaging $1,000,
covering about 60 percent of their
losses, Muris said. Personal loans will
bring smaller refunds.
Eligible people would receive
cash refunds or reduced loan bal-
ances. Consumers should expect
payment in about 10 months, offi-
cials said.
The FTC charged last year that
Associates tricked borrowers into

ment would provide another $25 mil-
lion to consumers.
By settling, Citigroup does not
admit breaking any law. The company
said it implemented reforms after tak-
ing over Associates.
"When we bought Associates, we
found certain unacceptable practices
that needed to be changed," Citigroup
president Robert Willumstad said. "We
are confident that yesterday's settle-
ment provides redress to those former
Associates customers who were
harmed."
Nancy Traves, an accountant from
Mentor, Ohio, said her family refi-
nanced a mortgage with Associates in
May 1997 to get $15,000 for emer-
gency medical expenses. She declined
offers to buy credit insurance, but six
months later discovered that Associates
had added fees and insurance increas-
ing her mortgage by more than
$50,000.
"They are crooks," she said.
"They've ruined my credit. I had
another stroke because of the stress."
Traves, 63, said that Associates
responded with threats when she com-
plained, including one manager who
told her, "We'll take away your home
one way or another."
A group that represents low-income
families called the settlement "totally
inadequate."
"It's too little to make whole the
people who lost money to predatory

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