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Since the year started, Fiat Chrysler has faced a lawsuit alleging it padded monthly U.S. sales reports by paying dealerships to report unsold cars as sold. In a lengthy statement this afternoon, FCA said it has committed to “new methodology” in analyzing sales data and admitted its 71 consecutive months of year-over-year increases did not, in fact, occur.
While FCA did not admit wrongdoing in the face of multiple investigationsâincluding the lawsuit brought by two Chicago-area FCA dealers, plus fraud probes by the Department of Justice and the Securities and Exchange Commissionâit revealed it had overstated U.S. sales by hundreds of cars each month since the start of 2011 due to unsold cars reported as sold.
At issue is what FCA calls an “unwind,” in which a dealer reverses a sales transaction after reporting it to FCA as sold. This happens frequently enough each month to all automakers, typically the result of a customer’s failing to secure financing or canceling an order, insurance claims, or any number of other valid reasons. But some FCA dealers, theÂ company has admitted, have registered sales during one month and then reversed them the nextÂ month without FCA ever recording the change. FCA says there were 4500 “unwound” cars in dealer stock as of June 30. Given FCA’s data, we can assume they’re referring to just this year alone, since new cars don’t sit on dealer lots for more than a few months at most.
While FCA says its system only allows dealers to report a VIN onceâso there can be no duplicatesâthe company, until now, had no method to exclude “unwinds” in one month or include previously reported sales that were actually delivered in the proceeding months. That means FCA’s stated annual U.S. sales from 2011 until now have been either overstated or understated by thousands of cars each year or, as FCA puts it, “within approximately 0.7 percent of the annual unit sales volumes previously reported.” In 2015 alone, when FCA reported more than 2.2 million U.S. sales, the company actually excluded nearly 14,000 cars from its total. In total, between January 2011 and June 2016, FCA understated its total U.S. sales by nearly 19,000 cars. Through June this year, however, FCA said it overstated sales by 7450 cars.
Not all of the fluctuations are due to reversed transactions. FCA also said it was a “historical practice” to include a “reserve” of carsâpress cars, employee cars, and fleet sales that hadn’t been deliveredâinto its monthly sales reports, since it was “probably originally designed to exclude from the reported sales number vehicles that were in transit to fleet customers, as well as vehicles that were not yet deployed in the field.” In other words, more cars that weren’t technically sold have been included (and sometimes, not included when they were finally sold) in FCA’s monthly sales reports.
When FCA ran the numbers again accounting for these extra non-sales, it admitted that the company’s consecutive monthly year-over-year increases should have stopped in September 2013 instead of February 2016, as it had reported in March of this year. Instead of a whopping 71 months, the actual number was 40 months. Starting next month, FCA says it will report all of its future U.S. sales using this new methodology.
A sale, by definition, is when a customer takes delivery and the warranty period begins. FCA, in its own defense, also says that it will “reverse all incentives due or paid to a dealer that resulted from the unwound retail sales transaction.” It did not specify how it compensated dealers for such reported sales or take any stance on the lawsuit’s charges of fraud.
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It’s not uncommon for dealers to report a sale when it didn’t happen, often to meet sales goals and free upÂ allocation so it can order more cars, and then offer the “sold” new car at a discount as its warranty ticks away. It can also happen with loaner cars when the vehicles are registered to the dealer instead of a customer. Ultimately, dealers as independent franchisees only have to abide by as many checks and balances as their franchiser chooses to impart. We’re not certain how this gray area will affect FCA or any automaker in the long run, but it has certainly widened our skeptical eyes when all the latest sales reports come out next week.
UPDATE 7/27: This story has been updated to include exact, revised sales numbers as provided by FCA.