FCA Sales Chief Reid Bigland put a stop to the automaker's sales practices designed to keep its 75-month streak of increasing sales alive.
Fiat Chrysler is in the midst of one of the most impressive sales streaks ever. The automaker’s on a 75-month run of consecutive month-over-month sales, although an internal review conducted by the automaker is revealing that the streak may not be true.
At certain times during the run, thousands of vehicle sales reported by FCA brands for which there were no actual buyers, according to two company sources, according to a report in Automotive News.
U.S. sales head Reid Bigland put a stop to the practice, which resulted in FCA US reporting sales of 5,000 to 6,000 vehicles. After they had been reported as sold by dealers, they were then “unwound,” the publication reported.
Currently, the company is under investigation – a query it is cooperating with – by the Securities and Exchange Commission about the potentially falsified sales numbers.
This is by no means the first time questions have been raised about industry sales numbers over the years. Both Cadillac and Lincoln were caught manipulating numbers when they were trying to retain their leadership of the luxury market. More recently, allegations have been levied against the current high-line leaders, including BMW and Mercedes-Benz.
Some makers have bent – if not broken – the rules by having dealers move new vehicles into their ser vice fleets and declaring them as retail sales. In fact, the vehicles must later be sold as used.
Complaints about FCA's sales reporting practices are rumored to have gotten the attention of CEO Sergio Marchionne.
(Feds probing fraud at Fiat Chrysler. For more, Click Here.)
The move was aimed at keeping FCA’s much ballyhooed sales streak, but the pushback from dealers regarding the practice was increasing. In fact, the complaints were rumored to be getting to CEO Sergio Marchionne, and Bigland squashed the practice as a result.
The SEC investigation comes about six months after two FCA dealers took the maker to court, in a civil racketeering complaint argument that, the maker’s doctored numbers, “create the appearance that FCA’s performance is better than, in reality, it actually is.”
The civil lawsuit was filed by two dealerships owned by the Napleton Automotive Group. According to trade publication Automotive News, Napleton was the country’s 31st largest dealership chain as of 2014.
In January, FCA denied the allegations made by the dealerships – one in Arlington Heights, Illinois, the other in Lake Park, Florida. “This lawsuit is nothing more than the product of two disgruntled dealers who have failed to perform their obligations under the dealer agreements they signed with FCA US,” the company said.
While the automaker is working with SEC investigators, its carefully parsing its language, preparing to defend itself on two tracks. It also made significant change to its monthly sales press releases starting with its April 1 release.
On that release, FCA began to include a disclaimer about its sales reporting policies, saying the “method for determining monthly sales” said, in part: “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.
(FCA denies pressuring dealers to inflate sales results. Click Here the story.)
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,” the maker said.
FCA also differentiated between quarterly corporate financial reporting and its monthly reports of sales to retail and fleet buyers.
The company noted that in its “annual and quarterly financial statements, it records revenues based on shipments to dealers and customers and not on reported vehicle unit sales to end customers.”
Peter Henning, a former SEC lawyer and a professor at Wayne State University Law School in Detroit, told the publication he believes that FCA is distinguishing the two methods of reporting sales as a possible defense, but it’s unlikely to work. He said he believes the feds are looking into monthly sales numbers, not revenue figures.
“What the SEC focuses on is disclosure to investors and to the market, so they’re not going to buy a claim that “We don’t technically engage in sales. The dealers do.’ This is all of a piece, which is: How do you measure how any auto company is doing? Sales. That’s the bottom line, and that’s what the SEC is going to be looking at,” Henning said to Automotive News.
Henning said the involvement of the Justice Department suggests there is more going on, that there is actual “wrongdoing,” he said. “Normally, it will defer to the SEC. Just the disclosure that they’re on the scene means that there’s at least smoke, and maybe a fire.”
(To see more about the strong start by the Chrysler Pacifica, Click Here.)
The investigation isn’t Fiat Chrysler’s only issue on the horizon. FCA’s health has come under question in recent months, despite its steady stream of sales gains, because its performance has been strong almost exclusively on the truck side of the ledger. Demand for the maker’s passenger cars has slipped so badly FCA plans to drop two once-important models, the Chrysler 200 and the Dodge Dart.