General Motors starts crackdown on inventory-cheating dealers

Article by Anita Panait, on January 24, 2012

General Motors issued a January 9 memo to its U.S. dealers, disclosing that it is clamping down on those who are cheating its vehicle-ordering system to snag more cars and trucks than they ought to receive.  In its memo to around 4,500 U.S. dealers, GM said it has uncovered "significant ordering and reporting abuses," and threatened to punish violating firms by having them pay $500 fines per incident, cutting off incentive cash or terminating their dealer agreements. 

GM said its shift to a "lean-inventory environment" made it more difficult for dealers to get popular models as the company tightened its production schedules. 

GM gave an example of the violation it dubbed "false transfer of products." The scam works like this: Just before GM takes a monthly survey of a dealer’s inventory, he would move five GM vehicles from his store to another shop or to another dealer’s lot. Due to the false inventory, GM will deliver more vehicles the following month to his store to prop up inventory. 

Another way the scam is done: A dealer places an order for a buyer who has paid a deposit, and that order is processed by GM, says Autonews. But usually, there is no buyer and the delivered vehicle simply goes to the lot.

GM reckons that 30% of its supposedly sold orders arrive at dealerships with no real buyers waiting, a person privy with the matter said. The practice either inflates dealers' sales figures or artificially shrinks their inventory.

GM’s current crackdown underlines the drastic change in the company’s production strategy. Years ago, GM was just delivering vehicles more than dealerships could sell, forcing the company to give profit-eroding discounts, dragging down resale values and contributing to GM's 2009 bankruptcy.

Topics: gm, dealer

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