Were Fiat Chrysler dealers told to commit "unnatural acts" to help boost sales?

When does the “unnatural” cross into the illegal? That’s apparently something that federal prosecutors are looking into as they ramp up an investigation into potential sales fraud by Fiat Chrysler Automobiles.

Both the U.S. Justice Department and the Securities and Exchange Commission are looking into the way FCA handled sales, probes that have already resulted in the trans-Atlantic automaker having to restate its numbers and admit its streak of month-after-month sales increases actually ended several years ago.

FCA is by no means the only automaker to have pushed the boundaries, according to industry insiders. But the feds want to know if it crossed the line into illegal actions. The probe has uncovered some of the steps FCA took to boost its sales. Among other things, if the numbers were falling short, corporate officials would tell regional managers and dealers that the “unnatural acts department” was open, according to a report in the Wall Street Journal.

That was intended to motivate them to do pretty much whatever was necessary to boost sales. Some steps, such as offering especially attractive consumer incentives, were likely quite legal. But investigators are focusing on other, potentially more problematic actions, such as having a dealer shift cars into its test fleet and then reporting those vehicles as if they were sales.

How corporate executives intended that rallying cry to be interpreted could eventually serve as the foundation for any legal actions the government might take. The Justice Department is conducting a criminal probe, the SEC a civil one looking at whether improper reporting of sales illegally influenced FCA’s stock price.

FCA CEO Marchionne: "laying the facts on the table."

(Buyers take a breather as August sales slump. Click Here for more.)

FCA isn’t discussing the Journal report, though the maker previously told TheDetroitBureau.com it “will fully cooperate” with both the DOJ and the SEC. At the same time, it has dismissed the claims made in lawsuits that initially triggered the probes.

The FCA investigation was put in motion earlier this year when two dealerships run by the Napleton Automotive Group – listed by Automotive News as the country’s 31st largest dealership chain – filed a civil racketeering lawsuit against the automaker.

In March, Napleton amended its lawsuit to claim that FCA’s North American operations, “knowingly endorses and encourages the false reporting of motor vehicle sales by directly rewarding its district managers and business center directors with monetary and quarterly bonuses which are directly related to reported vehicle sales numbers.”

At the time, FCA responded by downplaying the charges as “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.”

There’s no question that dealers often come under pressure to deliver the sales numbers manufacturers want. Cooperative retailers can be remunerated directly with cash, and automakers can reward – or punish – dealers by altering allocations of more popular products.

Where that crosses the line can be a gray area, but one of the lawsuits claimed that FCA offered a Chicago dealer $20,000 to report sales of 40 vehicles. It then reversed those sales the following month to avoid activating the warranties.

While FCA had to readjust past sales numbers it says it was still up 3% for August.

The FBI has met with nine FCA regional sales directors at their homes, according to the Journal report, and the investigation appears to be focused on a handful of regional sales offices, including those in Chicago and Denver.

Several high-ranking retailers have told TheDetroitBureau.com that such practices were commonplace, but not only at Fiat Chrysler. A number of different methods have been used, according to those executives – who demanded anonymity. One approach is to move vehicles off the retail side of the lot and into the dealer test and loaner fleet but report them as retail sales.

(Marchionne pushed for manufacturing revival at FCA. Click Here for the story.)

Manufacturers have long been accused of overstating their sales numbers, and occasionally caught. Both Cadillac and Lincoln had to restate their figures at various times back towards the end of the last millennium, when they were both struggling to retain the lead in the U.S. luxury market. Several high-line imports have been accused of playing fast-and-loose in more recent times in their own efforts to rein as the high-line-king-of-the-hill.

“Volume sales is like crack cocaine, completely addictive, said Max Zanan, president of Total Dealer Compliance, a consulting firm that helps retailers meet regulatory guidelines. “It’s not Chrysler that does this. I think every other manufacturer uses the same tactic. The industry, as a whole, is guilty of this.”

During an appearance at an FCA plant last week, FCA Chief Executive Sergio Marchionne said the company that emerged from bankruptcy in 2010 was stuck with a flawed sales reporting process. “We just kept applying the same reporting system,” he said, adding that Fiat Chrysler has revised its figures “to lay the facts on the table.”

(Click Here to see how you can score a good deal on an outgoing 2016 model.)

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