Sergio calls federal sales probe a 'nonissue'

DETROIT — A confident Sergio Marchionne told reporters last month that the federal investigation into Fiat Chrysler’s U.S. sales reporting system is “a nonissue” and that the company is cooperating.

“The important thing to remember is that our financial numbers are totally unimpacted by this issue,” Marchionne said at an Aug. 26 event in suburban Detroit. “It’s a nonissue.”

On July 11, investigators from the U.S. Department of Justice and the Securities and Exchange Commission raided all nine of FCA’s regional business centers in the U.S., as well as the company’s headquarters and some employees’ homes. Information from FCA dealers has also been subpoenaed by a federal grand jury in Detroit looking into the matter, said a lawyer for one of the dealers who had received a subpoena.

On Thursday, Sept. 1, The Wall Street Journal reported that federal investigators are looking into whether the automaker encouraged dealers to falsify sales figures by using a phrase — the “unnatural acts department” — to signify to dealers and subordinates that they should start boosting numbers. The Journal cited people familiar with the investigation as the source of the revelation, and said an FCA spokeswoman declined to comment on the report.

Shortly after news of the federal investigations became public, FCA announced it had changed its sales reporting method and restated monthly sales results going back to 2011. The new method removes any dealer-reported sales that are subsequently “unwound,” meaning the vehicles weren’t actually sold, and reports fleet sales when they are delivered.

“Now that the streak is over, and we know it ended years ago, there’s less reason to play with the numbers.”

Karl Brauer
Kelley Blue Book

Asked about the ongoing investigation, Marchionne said the company restated its sales “to lay the facts on the table,” and that its new sales reporting method “has absolute intellectual integrity. It’s not subject to multiple answers; we give you the best view that we have.” 

FCA’s restatement allowed it last week to post a sales gain of 3.1 percent in August. If FCA hadn’t restated sales, the sales it posted for August 2016 would have been 2.4 percent less than a year ago, in line with the overall industry decline of 3.5 percent. 

FCA hasn’t released its restated sales data by model or brand, except for July and August of 2015, which were revealed when the automaker reported previous years’ sales with its monthly sales releases. 

The restated model-level numbers show differences wide and small in its sales reporting. 

For example, FCA originally said it sold 3,140 fewer Ram pickups in July 2015 than it actually did, a difference of 8.7 percent from what it says now is the correct number. But for August, the automaker says it originally said it sold 4,969 more Ram pickups than it had, a difference of 12 percent. 

Most other model-level differences were less pronounced, but all were different. 

Karl Brauer, senior director of insights for Kelley Blue Book, said he believes FCA’s “”current sales numbers are accurate. Being put under the spotlight for that issue isn’t something they want to repeat, and the numbers were never that far off before, just minor tweaks to keep the streak going.” 

In its restatement in July, FCA said what had been a six-plus-year streak of month-over-month sales increases actually had ended in September 2013. 

“Now that the streak is over, and we know it ended years ago, there’s less reason to play with the numbers,” Brauer said. “FCA still has a lot of momentum with the Jeep and Ram brands, and now they’ve got the Pacifica helping out, and Dodge seems to have, finally, stabilized.” 

Marchionne told reporters Aug. 26 that the way FCA had historically reported sales dated back decades, and that there is no industry standard practice. 

“We inherited the reporting system that goes back to the 1980s, and we just kept on applying the same reporting system that existed inside the house for nearly 40 years. I’m not going to make any apologies about it. We picked it up in 2009,” the FCA CEO said. “My view is that a large portion of this industry uses its own reporting method. There’s no accepted reporting methodology. We have had that conversation with the SEC on this matter, and we’ll take it from there.”

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