Lawsuit Accuses Fiat Chrysler Of Paying Dealers To Falsify Sales Reports

Each month for the past six years Fiat Chrysler has reported gains in sales. But a new lawsuit accuses the carmaker of conspiring with dealers to inflate U.S. sales, casting a shadow of doubt over those impressive numbers.

Two dealerships in Florida and Chicago, operating as part of the Napleton Automotive Group, filed the civil racketeering lawsuit [PDF] this week, claiming that the manufacturer paid dealers to report false sales in order to “create the appearance that FCA’s performance was better than, in reality, it actually was.”

According to the lawsuit, FCA provided payments to dealers who were willing to report the false sales on the last day of the sales month and then reverse the sales the following business day “before the factory warranty on the vehicles could be processed and start to run.”

For example, the lawsuit claims, an FCA business manager offered the owner of a Chrysler Jeep Dodge Ram dealer, operating as part of NAG, $20,000 “to falsely report the sales of 40 new vehicles” at the end of the month.

The $20,000 payment was to be disguised as a “co-op advertising credit to the dealer’s account.”

While the dealership owner rejected the offer, he later discovered that another employee had already taken a similar deal to falsely report the sale of 16 vehicles.

Additionally, the suit claims that a rival Chrysler Jeep Dodge Ram dealer allegedly conspired with FCA to falsely report 85 new vehicle delivery reports. As a result of the fabricated sales, the second dealership received “tens of thousands of dollars as an illicit reward for their complicity in the scheme.”

The complaint alleges that FCA officials were aware of the falsified sales reports and rewarded local managers for their work.

A spokesperson for FCA tells Automotive News that the company believes that the claims are without merit and was filed by a discontented dealer group.

“The company is confident in the integrity of its business processes and dealer arrangements and intends to defend this action vigorously,” the spokesperson said.

In addition to conspiring to inflate U.S. sales, the lawsuit claims that FCA’s Volume Growth Program unfairly pressured dealers to accept offers of inflating sales from the company.

Under the Volume Growth Program, dealers who reach a monthly volume target receive a payment on each new vehicle sold that month. Dealers who failed to reach 100% percent of their monthly sales goal received nothing. The program was recently altered to allow dealers to receive a reduced payment for hitting at least 90% of their monthly goal.

The suit claims these tactics are FCA’s way of “strong-arming its dealers to achieve sales numbers,” and increasing the sales goal even higher in the following month if a dealership failed to achieve its VGP target the month before.

Dealers who do not meet goals are then allegedly threatened, with the FCA manipulating an internal minimum sales responsibility metric.

The suit alleges that FCA uses the MSR metric to “directly control and otherwise intimidate dealers to bow [to] its will under the constant threat of the termination of their dealerships for contrived defaults in FCA’s Dealer Agreement.”

News of the lawsuit sent FCA’s stock plummeting on Thursday, Reuters reports. The carmaker’s shares had called 9.8% early in the day after being suspended from trading twice for excessive volatility.

Dealerships accuse Fiat Chrysler of falsifying U.S. sales [Automotive News]
Fiat Chrysler shares hit by report of U.S. lawsuit [Reuters]