FCA calls dealer charges of false U.S. sales reports 'baseless'

'Disgruntled dealers' haven't substantiated claims, company charges

DETROIT -- FCA fired back at what it called underperforming and “disgruntled dealers” who have accused the company of falsely reporting U.S. sales in a federal racketeering suit.

The automaker, in a sharply worded statement late Thursday, said it conducted an investigation before the suit was filed and accused the two dealers of failing to substantiate and provide evidence supporting claims contained in the complaint.

Napleton Automotive Group of Westmont, Ill., alleges, among other claims, that FCA conspired with certain dealers to inflate the automaker’s monthly U.S. sales results. In some cases, the suit claims, FCA offered dealers money to falsify sales reports.

The suit was filed Tuesday in U.S. District Court in Chicago on behalf of Napleton Automotive Group’s Chrysler Jeep Dodge Ram store in Arlington Heights, Ill., and Northlake Chrysler Jeep Dodge Ram in Lake Park, Fla.

Fiat Chrysler shares tumbled in Milan and New York on Thursday following an Automotive News report of the suit late Wednesday.

“Notwithstanding numerous requests to provide evidence of this alleged activity, the plaintiffs have refused to substantiate their claims,” FCA said in a statement. “FCA US carried out an investigation of the facts, and has determined that these allegations are baseless and plaintiffs were notified of this fact before they filed suit.”

The suit, filed by Kevin Hyde, an assistant general counsel for the dealerships, alleges that dealers were paid to report false sales on the last day of the sales reporting month and then “back out,” or unwind the sales, the following business day “before the factory warranty on the vehicles could be processed and start to run.”

The company also accused the dealerships of threatening litigation if they did not secure additional open FCA sales points. The Napleton family operates more than 50 dealerships in Illinois, Florida, Pennsylvania and Missouri representing 32 franchises.

“This lawsuit is nothing more than the product of two disgruntled dealers who have failed to perform their obligations under the dealer agreements they signed with FCA US,” the company said in the statement. “They have consistently failed to perform since at least 2012, and have also used the threats of litigation over the last several months in a wrongful attempt to compel FCA US to reserve special treatment for them, including the allocation of additional open points in the US FCA network.”

Edward Napleton, the dealer principal, declined comment. Attorney Len Bellavia, who specializes in dealer litigation, has been hired to prosecute the case.

FCA shares closed down 4 percent at $7.53 a share Thursday on the New York Stock Exchange as some analysts expressed concern about fallout from the suit.

“We would not be surprised if other [automakers] followed a similar tactic to varying degrees,” Wells Fargo analyst David H. Lim said in a report Thursday. “The emergence of these allegations point to a possible weakness in sales quality” across the industry.

In one case, Napleton alleges the dealer was offered $20,000 to falsely report the sales of 40 vehicles. According to the suit, Napleton turned down the offer and informed FCA employees at the company’s regional business center that it should refrain from the practice. Instead, Fiat Chrysler, according to the complaint, approached other dealers who would accept the deal.

To encourage churn and drive higher sales, automakers often dangle bonuses and other incentives to dealers who increase new-vehicle orders or quickly sell out of older models on a lot.

FCA said it would not be intimidated by the suit.

The company also took a rare shot at the media for reporting and publishing details of the lawsuit.

“FCA US will continue to resist these pressures, safeguarding the relationship of trust and openness which governs its relationship with its dealers,” the company said. “FCA finds it unfortunate and disappointing that reputable media would be willing to be used in questionable litigation practices without a full understanding of the facts.”

You can reach Larry P. Vellequette at lvellequette@crain.com -- Follow Larry P. on Twitter: https://twitter.com/LarryVellequett

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