Earlier this week, two Fiat Chrysler dealerships filed a lawsuit accusing FCA of asking them to falsify sales figures, giving the media and investors an inflated sense of the company's growth. FCA has responded by saying that the allegations are completely false.
The racketeering suit comes from two FCA dealers in the Napleton Automotive Group. They claim 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.
The suit claims that FCA altered its accounting system in part to allow these sorts of transactions to take place.
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As evidence, the dealers claim that on one occasion, FCA reps asked dealer Edward Napleton to report 40 unsold vehicles as sold at the month's end. In exchange, the reps offered Napleton $20,000, which would've been hidden on the dealership's ledger as a "co-op advertising credit".
The dealers also claim that a competing FCA outlet falsely reported some 85 sales and received "tense of thousands of dollars" in exchange for their deceptive move.
As a result of these and other alleged acts, the suit claims that FCA's sales were overstated, driving stock prices higher and encouraging dealers to invest in improvements to their facilities -- improvements they might not have made if sales were more lackluster.
On January 5, FCA reported that December 2015 sales were up 13 percent from 2014, making it the company's best December in 90 years. FCA also said that 2015 calendar year sales were up seven percent, the strongest growth since 2005.
Shares of FCA stock fell in both Italy and the U.S. following news of the suit.
FCA's initial response to the claim was somewhat muted, saying that it hadn't reviewed the suit but was devoted to ensuring the integrity of its company-wide business practices.
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After reviewing the court documents, however, FCA came out swinging. An excerpt of the company's statement reads:
The lawsuit makes allegations of false sales reporting by FCA US. Notwithstanding numerous requests to provide evidence of this alleged activity, the plaintiffs have refused to substantiate their claims. FCA US carried out an investigation of the facts, and has determined that these allegations are baseless and plaintiffs were notified of this fact before they filed suit.
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. They have consistently failed to perform since at least 2012, and have also used the threats of litigation over the last several months in a wrongful attempt to compel FCA US to reserve special treatment for them, including the allocation of additional open points in the US FCA network.
FCA US will continue to resist these pressures, safeguarding the relationship of trust and openness which governs its relationship with its dealers. FCA finds it unfortunate and disappointing that reputable media would be willing to be used in questionable litigation practices without a full understanding of the facts.
Translation: we've already looked into this matter, and there's nothing to it.
Without access to the evidence in this case, it's impossible for us to take any sort of position on it. Given the billions of dollars in sales up for grabs in the auto industry, we're sure that every automaker on the planet has creative ways of accounting to put the best possible spin on their numbers, but that doesn't mean that they falsify data. In fact, given the push toward transparency in the business world these days, it's hard to believe that such brazen acts of fraud could be carried out.
In other words, this is most definitely a matter for the court to decide.
That said, FCA's denial of the allegations does seem a little harsh. Even if what the company says is true, implying that the plaintiffs are an angry bunch of losers seems like the wrong tone. In situations like these -- even those where companies have been directly attacked and their reputations damaged -- it's often better to take a higher road and conduct fights behind closed doors. The general public is usually prone to side with the little guy -- even if the little guy is one of America's larger dealer groups.