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Fiat Chrysler audit suggests sales stats have been inflated: SEC, Justice Dept. investigate
Back in January, two dealers filed a lawsuit against Fiat Chrysler Automobiles, alleging that FCA had asked them to inflate their monthly sales stats. Though FCA was quick to dismiss the dealers' claims, an internal audit may prove the old maxim that where there's smoke, there's fire.
The audit was ordered in mid-2015, as complaints from dealers began reaching FCA's executive suites. Though details haven't been made public, sources familiar with the matter say that up to 6,000 vehicle sales were falsely reported during the period covered by the audit.
READ: Cadillac ATS Vs. BMW 3-Series: Compare Cars
Exactly how those sales were recorded and then unrecorded or "unwound" is unknown, but the aforementioned lawsuit claimed that:
"FCA asked the dealerships to submit inflated sales stats on the last day of particular months, then back the sales out of the system on the following day. Doing so would have allowed the false sales to be counted for the given month, but kept the factory warranties on the affected vehicles from being processed, which would've made backing the sales out of the system more difficult to do."
In exchange for the fudged sales numbers, dealers allegedly received benefits from FCA like co-op advertising credits. Meanwhile, FCA got to boast of its long-running sales increases, which boosted stock prices.
If rumors about the audit are accurate, it could signal big problems for FCA, which is now being investigated by the Justice Department and the Securities and Exchange Commission over its sales reporting practices. FCA may have anticipated those investigations back in April, when it began including a lengthy disclaimer in its monthly sales announcements:
"FCA US reported vehicle sales represent sales of its vehicles to retail and fleet customers, as well as limited deliveries of vehicles to its officers, directors, employees and retirees. Sales from dealers to customers are reported to FCA US by dealers as sales are made on an ongoing basis through a new vehicle delivery reporting system that then compiles the reported data as of the end of each month. Sales through dealers do not necessarily correspond to reported revenues, which are based on the sale and delivery of vehicles to the dealers. In certain limited circumstances where sales are made directly by FCA US, such sales are reported through its management reporting system."
Read that paragraph closely: you'll see that FCA has put up a low firewall in saying that sales to individual consumers aren't tracked directly by FCA, but are instead reported to FCA by dealers. That doesn't necessarily excuse FCA if it's been exerting pressure on dealerships to inflate figures, but it does mean that FCA's reported figures aren't internally generated.
The statement also clarifies how FCA arrives at its revenue numbers, which could help assuage the SEC's concerns about inflated stock value.
The good news is that insiders say FCA's U.S. head of sales, Reid Bigland, helped put an end to the practice of inflating sales last year. The bad news is, at least one source reports that under pressure to keep FCA's 75-month-long sales streak going, some dealers have returned to their old ways.
We'll keep you posted as the investigation continues.
Back in January, two dealers filed a lawsuit against Fiat Chrysler Automobiles, alleging that FCA had asked them to inflate their monthly sales stats. Though FCA was quick to dismiss the dealers' claims, an internal audit may prove the old maxim that where there's smoke, there's fire.
The audit was ordered in mid-2015, as complaints from dealers began reaching FCA's executive suites. Though details haven't been made public, sources familiar with the matter say that up to 6,000 vehicle sales were falsely reported during the period covered by the audit.
READ: Cadillac ATS Vs. BMW 3-Series: Compare Cars
Exactly how those sales were recorded and then unrecorded or "unwound" is unknown, but the aforementioned lawsuit claimed that:
"FCA asked the dealerships to submit inflated sales stats on the last day of particular months, then back the sales out of the system on the following day. Doing so would have allowed the false sales to be counted for the given month, but kept the factory warranties on the affected vehicles from being processed, which would've made backing the sales out of the system more difficult to do."
In exchange for the fudged sales numbers, dealers allegedly received benefits from FCA like co-op advertising credits. Meanwhile, FCA got to boast of its long-running sales increases, which boosted stock prices.
If rumors about the audit are accurate, it could signal big problems for FCA, which is now being investigated by the Justice Department and the Securities and Exchange Commission over its sales reporting practices. FCA may have anticipated those investigations back in April, when it began including a lengthy disclaimer in its monthly sales announcements:
"FCA US reported vehicle sales represent sales of its vehicles to retail and fleet customers, as well as limited deliveries of vehicles to its officers, directors, employees and retirees. Sales from dealers to customers are reported to FCA US by dealers as sales are made on an ongoing basis through a new vehicle delivery reporting system that then compiles the reported data as of the end of each month. Sales through dealers do not necessarily correspond to reported revenues, which are based on the sale and delivery of vehicles to the dealers. In certain limited circumstances where sales are made directly by FCA US, such sales are reported through its management reporting system."
Read that paragraph closely: you'll see that FCA has put up a low firewall in saying that sales to individual consumers aren't tracked directly by FCA, but are instead reported to FCA by dealers. That doesn't necessarily excuse FCA if it's been exerting pressure on dealerships to inflate figures, but it does mean that FCA's reported figures aren't internally generated.
The statement also clarifies how FCA arrives at its revenue numbers, which could help assuage the SEC's concerns about inflated stock value.
The good news is that insiders say FCA's U.S. head of sales, Reid Bigland, helped put an end to the practice of inflating sales last year. The bad news is, at least one source reports that under pressure to keep FCA's 75-month-long sales streak going, some dealers have returned to their old ways.
We'll keep you posted as the investigation continues.
