FCA US is facing a civil racketeering suit filed by two Fiat Chrysler dealerships that are part of the Napleton Automotive Group. The plaintiffs – Napleton's Chrysler Jeep Dodge Ram stores in Arlington Heights, Ill., and its Northlake Chrysler Jeep Dodge Ram store in Lake Park, Fla. – allege that the carmaker was in conspiracy with some dealers to bloat its monthly US sales reports.
Since emerging from its bankruptcy, FCA managed to report 69 straight monthly year-over-year sales increases. In fact, FCA officials, including chief executive Sergio Marchionne, flaunted the carmaker's streak at the 2016 Detroit auto show. It should be noted that it was the longest current streak of any carmaker.
According to the plaintiffs, FCA paid dealers to report the false sales on the last day of the sales month. The next business day, the dealer will then “back out” or unwind the sales before the factory warranty on the vehicles could be processed and start to run.
The suit also claims that FCA officials had knowledge of the false reporting of sales and even rewarded local managers for hitting sales targets despite being aware that its sales goals had only been achieved through false sales reports. Plaintiffs claim that FCA directly benefited from the practice, which they said results to inflation of the year-over-year sales figure, thereby making it seem that FCA’s performance is better than it actually is.
According to the suit, one example of the practice involved Napleton’s dealer principal, Edward Napleton, and his dealership, Napleton Arlington Heights Chrysler Jeep Dodge Ram. It claims that FCA's business center manager had once offered Edward Napleton around $20,000 just to falsely report sales of 40 new vehicles at the end of a month. It added that the offer came after one of the dealer’s subordinates had agreed to and committed a false report on the sale of 16 new vehicles sans Napleton’s knowledge.
The suit said that Napleton rejected the offer and was then able to discover the false report of 16 new vehicle sales. It added that the payment was to be disguised as a co-op advertising credit to the dealer’s account in order not to prompt a sales audit and thereby reveal the practice. Additionally, the suit claims that another Chrysler Jeep Dodge Ram dealer, a direct rival of Napleton Chrysler Jeep Dodge Ram, received tens of thousands of dollars from FCA to report 85 false new vehicle sales.
Moreover, the suit claims that the carmaker creates a de facto two-tiered pricing system for dealers as a result of its aggressive use of stair steps in its so-called Volume Growth Program (VGP). Under this program, dealers who are able to achieve 100 percent of its monthly volume target get a payment on each new vehicle sold that month, but those who failed to do so would receive nothing.
The program, however, was recently modified to allow dealers who achieve at least 90 percent of their monthly sales target to also receive payment, albeit a reduced one. Moreover, plaintiffs accuse FCA of “strong-arming" its dealers to achieve sales targets via its VGP program.
They added that if a dealership failed to achieve its VGP target on a certain month, FCA would hike the goal in the following month. Likewise, dealers would get more allocation in the following month if they agree to falsely report sales of hot-selling vehicles, although these units were not actually sold.
Napleton’s suit also alleges that the carmaker’s “pattern of conduct” towards dealers could be described as coercion and threats of termination, and has nothing to do with their actual performance. Likewise, the suit claims that FCA manipulates an internal metric dubbed as MSR (minimum sales responsibility) to pressure dealers who failed to sales target.
It noted that the carmaker has not used MSR as a tool to evaluate dealers, but rather to hide its practice of multi-tier pricing. The suit also alleges that the carmaker uses its MSR metric to directly control and intimidate dealers through the constant threat of the termination of their dealerships.