GM: Iowa dealer faked sales
Suit comes as company cracks down on retailers over ordering, reporting
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General Motors is suing a Davenport, Iowa, Chevrolet dealership to stop what the automaker calls a "widespread fraudulent and unlawful" scheme to falsely report retail new-vehicle sales.
The federal court suit accuses Leep Chevrolet, which does business as Lujack Chevrolet, of transferring vehicles to affiliated non-Chevy dealerships in Iowa and Indiana for resale in what "is known within the Leep enterprise as 'Daisy Chain'" sales.
Leep claimed incentives for "some or all of the purported buyers," submitted fraudulent customer surveys and collected unearned GM Standards for Excellence payments, the suit says.
GM seeks an injunction, as well as damages for fraud, conspiracy and breach of contract.
Leep reported "dozens, if not hundreds" of retail sales to individuals, but "many of the reported purchasers did not purchase the vehicles in bona fide transactions, did not take delivery and did not use the vehicles for personal use," GM says. Other Leep-affiliated stores, including Honda dealerships, resold the vehicles as "used" but "like new," the suit says.
In a statement, Don Reese, COO of Gurley Leep Automotive, which manages Leep Chevrolet, declined to discuss details of the suit, but said, "In reviewing the notice, we disagree strongly with the allegations and consider them entirely unfounded and without merit."
The legal tangle comes amid a broader GM crackdown on dealers for what the company says are abuses of its vehicle-ordering and sales-reporting rules.
In a January 2012 memo, GM told dealers that it had uncovered "extensive gaming of the system" by dealers seeking to artificially boost their inventories.
Dealers point to GM's volume-based bonus systems as a driving force behind the bad behavior. The Standards for Excellence program requires them to increase their quarterly sales to receive bonus cash. The Essential Brand Elements program pays bonuses for every vehicle that dealers order.
In its memo, GM cited instances of "false transfer of products," which can result in a higher number of units being shipped to dealers under the so-called turn-and-earn system, common across the industry, which allocates vehicles based on past sales volumes and inventory levels.
The 2012 memo threatened to charge $500 per incident, suspend award payments, squeeze allocation or terminate the agreements of dealers caught scamming. It did not mention illegitimate claims of consumer incentives or submission of false customer surveys, as is alleged in the lawsuit against Leep.
The suit says Leep Chevrolet entered into a wind-down agreement in connection with GM's 2009 bankruptcy, but the franchise was reinstated following arbitration.
The suit attributes Leep's "dramatic and unprecedented increase in reported retail sales" last year to "fraud and other wrongful conduct." For instance, it said Leep reported selling 254 vehicles to 13 retail customers between Oct. 5 and Dec. 5. One employee of an affiliated store reportedly bought 27 vehicles during that period, taking delivery of three on a single day.
For every month but one from January 2011 through June 2012, the store reported selling fewer than 100 new units. In July 2012, reported sales jumped to 134 and then steadily climbed to a peak of 282 in November, the suit says.
Some vehicles were placed on display at other stores with the original window stickers, original factory plastic seat wrapping and fewer than 50 miles on the odometer, the suit says.
A GM spokeswoman declined to comment on the suit.
You can reach Eric Freedman at freedma5@msu.edu.
