Fiat Chrysler Investigated Over Allegations of False Sales Numbers

WASHINGTON (The Washington Post) -

Prosecutors from the Justice Department and the Securities and Exchange Commission have launched an investigation into Fiat Chrysler over complaints that the company has fudged quarterly sales tallies, a company spokesman confirmed.

Illinois and Florida dealers filed a civil suit against the manufacturer in January over a scheme the dealers say encouraged them to falsify new vehicle delivery reports to boost corporate sales numbers. Chrysler in legal filings called those claims “baseless” and “nothing more than the product of two disgruntled dealers.”

But now federal investigators have begun a criminal probe against the automaker for similar allegations.

Industry analysts say they are studying the way Chrysler “punches” automobiles, or offloads them onto dealers without a sale.

It’s a routine process practiced by all kinds of industries, but becomes problematic, analysts say, when manufacturers provide incentives for “punching” or “pushing” by giving more desirable cars or discounts to dealers that agree to take more inventory.

If manufacturers mark that offloaded inventory as sales, it could falsely inflate materials the company provides investors.

“If a company says it ships however many cars and a reasonable investor considers that number important in a decision to buy, sell or hold the stock, that is securities fraud,” said Erik Gordon, a professor at University of Michigan Ross School of Business. ” It would be very difficult to convince a jury that it’s not reasonable to consider sales number material. After all, it was important enough to push the vehicles through the channel. FCA must have thought [sales numbers] were important.”

The Department of Justice and SEC declined to comment on the investigation.

Fiat Chrysler in a statement said it would cooperate fully with investigators. In its financial filings, the company reports shipments to dealers and customers, not sales to end customers.

That method has angered dealers, analysts say, who complain they are saddled with too many cars at once and cannot clear their own balance sheets, even as Chrysler reports higher sales.

“These are tenuous relationships,” said James Albertine, senior automotive analyst at Consumer Edge Research. “There are things the manufacturers can do that put dealers in tough positions and don’t engender good relationships.”