Fiat Chrysler accused of inflating sales

[NEW YORK] Shares in Fiat Chrysler Automobiles tumbled in Milan and New York on Thursday after two US dealerships filed a lawsuit accusing the carmaker of inflating US car sales.

The suit, filed by dealers under the Illinois-based Napleton Automotive Group, charges that the incentive programmes from Italian company's US unit, FCA US, paid off rewarded dealerships that falsely reported higher car sales, inflating the auto giant's results.

The lawsuit cast a cloud over FCA's announcement on January 5 that it had sold a record 2.2 million vehicles last year, a seven per cent gain from 2014 on the back of a sharp surge in December.

FCA, Fiat Chrysler's strongest arm which has boasted of 69 straight months of year-over-year sales gains in the US, vowed to defend itself "vigorously" in the case.

"While the lawsuit has not yet been served on FCA US, the company believes that the claim is without merit," Fiat Chrysler said in a statement.

"The company is confident in the integrity of its business processes and dealer arrangements." The news nevertheless hit the company's shares, which fell 7.1 per cent in Milan and 5.3 per cent in New York.

The suit, filed in US federal court in Illinois, charged FCA with racketeering and fraud and said the company's practices unfairly harmed the two Napleton dealerships based in Illinois and Florida.

The suit accuses an FCA official of offering Napleton Automotive president Ed Napleton US$20,000 in exchange for falsely reporting the sales of 40 new vehicles.

Napleton declined the payment, but later learned that another Napleton employee had agreed to report 16 false car sales.

The suit also cites a case where a rival Fiat Chrysler dealer reported 85 false new vehicle sales after "receiving tens of thousands of dollars as an illicit reward for their complicity in the scheme."

In some cases, false sales were reported at the end of the month, so that they could be "backed out" the next day so the warranty time-table on the vehicles would not be triggered.

The fake sales "create the appearance that FCA's performance is better than, in reality, it actually is," said the suit.

"These results are reported to the public at large and investment community. FCA has every reason to continue to be opaque about this issue as it would not be helpful for the truth to come to light at the same time as FCA may be pursuing mergers and other business opportunities."

The suit also alleges that FCA's conduct towards dealers "has been one of coercion and threats of termination" for reasons that have that have nothing to with performance.

Fiat Chrysler chief executive Sergio Marchionne, having already merged Italian company Fiat with US giant Chrysler, said last year he favours additional consolidation in the auto industry and urged General Motors to consider merging with his company.

AFP