FCA Fiat Chrysler building Copyright Bill Pugliano, Getty Images

Fiat Chrysler Sales Reports Under Investigation by Justice Department, SEC

The federal investigation follows civil lawsuits that challenged the company’s sales numbers.

Fiat Chrysler Automobiles NV is under investigation by U.S. authorities over how it reports sales, the company said.

Fiat Chrysler is cooperating with investigations by the Justice Department and the Securities and Exchange Commission into the reporting of vehicle sales to customers in the U.S., the company said in a statement Monday.

Bloomberg News reported earlier that prosecutors had opened a criminal investigation into potential securities fraud, according to people familiar with the matter. The Justice Department inquiry is in an early stage, according to two people, who asked not to be identified because the investigation is confidential.

The federal investigation follows civil lawsuits that challenged the company’s sales numbers. In a suit filed in January, a Chicago-area dealer alleged the company inflated its U.S. car sales by paying dealers to report selling more vehicles than they actually did.

"In its annual and quarterly financial statements, FCA records revenues based on shipments to dealers and customers and not on reported vehicle unit sales to end customers," Fiat Chrysler said in the statement.

A Justice Department spokesman and an SEC spokeswoman declined to comment.

Fiat Chrysler shares in the U.S. fell more than 5% in intraday trading after the initial report of the probe. The shares recovered after the Fiat Chrysler announcement, rising less than 1% to $6.76 at 3:14 p.m. in New York.

Investigators from the Federal Bureau of Investigation and the SEC visited Fiat Chrysler offices and the homes of current and former employees in Michigan, Orlando, Dallas and California on July 11, according to a report Monday by Automotive News, citing an unnamed person.

Automaker Reported Record Sales

A criminal investigation could deliver a blow to the automaker, which has posted record vehicle sales since Fiat acquired full control of Chrysler in 2014 through a government-backed bailout that brought the maker of Jeep and Dodge brands out of bankruptcy in 2009. In December, Fiat Chrysler said it had the best month of U.S. sales in the company’s 90-year history with 217,527 vehicles sold -- recording its 69th consecutive month of year-over-year sales gains.

That performance was challenged in a private lawsuit filed the following month by dealerships in Illinois and Florida that alleged the sales were padded through a scheme by which dealers -- sometimes unbeknownst to their owners -- were paid to create false New Vehicle Delivery Reports. Similar claims were made in a 2015 lawsuit filed by a dealer of Fiat Chrysler-owned Maseratis.

Fiat Chrysler, in a Jan. 14 regulatory filing, said an internal investigation concluded the padding allegations were baseless and that the lawsuit was "nothing more than the product of two disgruntled dealers."

A federal judge in Chicago is considering Fiat Chrysler’s request to dismiss one of the lawsuits while a judge in Brooklyn is deciding whether to merge two other cases.

Similar Claims Made Against BMW

Fiat Chrysler isn’t the only carmaker accused of boosting sales numbers by getting dealers to inflate their figures. Similar claims have also been made against Bayerische Motoren Werke AG, also known as BMW, for paying its dealers as much as $1,750 a vehicle in December to put new models in their service fleets, the cars owners use when their vehicles are being worked on. Dealers booked the sales immediately, and the deliveries helped the company hit its target, people familiar with the practice told Bloomberg News in February.

BMW beat Lexus for the year by about 1,400 cars and Daimler AG’s Mercedes by almost 3,000, setting a record for its U.S. sales, according to Autodata Corp., a research company. BMW has said it sometimes gives dealers incentives to refresh their loaner fleets with new cars, which it says is an important part of its marketing plan.

By Tom Schoenberg and Tommaso Ebhardt

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