The Quick Lube Corporation utilized a business format franchise. Utilizing this format provided Herget with the ability to oversee company policies (agency theory). According to Barringer & Ireland, “it is more effective for the units to be run by franchisees than by managers who run company-owned stores” (218). However, franchisors such as Herget found that it is difficult to utilize and enforce the agency theory. As Herget struggled to enforce company contractual policies and regulations franchisees became increasingly dissatisfied and began revolting. Further distress to the company was exhibited as “royalties became difficult to justify” (397). The independence of franchises and employees can be demonstrated through the adverse selection theory. Quick Lube expanded at a quick rate leaving less time for supervisors to find appropriate employees to perform the jobs needed.
Although franchises demonstrated rapid-growth the profit margin was instable. The 1990 budget analysis revealed that the most successful month was July which produced $193,214. However, profit margins in February of 1991 the company produced a net income of $-6873.00. The instability of net income led the founder Frank Herget continuously defaulting on loans. Unfortunately the company failed to produce enough revenues for Herget to pay debits in the company’s formation and make a profit. In order to pay said debts Herget was forced to sell parts of the company to Huston Oil. Huston Oil had different conflicting ideas on how the franchise should be run. Huston’s business strategies further frustrated franchisees. The focus of the Quick Lube Corporation was to increase the productive opportunity set through the sales of oil. This strategy allowed the company to bring in addition revenue allowing for an increase in profit margins. Boosting profit margins would allow for the debit occurred (financing) at a quicker pace causing a boost in profits for company