FCA Tries to Explain its Sales Reporting Process After Being Accused of Inflating Numbers

FCA Tries to Explain its Sales Reporting Process After Being Accused of Inflating Numbers

Fiat Chrysler Automobiles (FCA) is trying to clear its name after being accused of inflating its sales numbers.

The automaker was recently under investigation by the SEC and FBI over its sales practices, presumably due to a lawsuit in which a Napleton dealership group in Illinois alleged FCA of paying dealers to improperly inflate sales. In response, FCA has released a detailed explanation on its sales reporting process, cautiously admitting that it recognizes “the limitations inherent in a process that collects data entered by some 2,600 dealers until midnight of the last reporting day of a month and releases the aggregate data typically within 8 hours of the final data entries.”

The company said that its current process hasn’t changed for more than 30 years, although reporting was previously made every 10 days before eventually evolving into monthly cycles.

FCA broke down its unit sales data reporting into three main components: sales made by dealers to retail customers, sales of vehicles shipped directly by FCA U.S. to fleet customers and other retail sales including sales by dealers in Puerto Rico, limited deliveries through distributors and a small number of vehicles delivered to FCA employees and retirees, as well as vehicles used for marketing.

SEE ALSO: Fiat Chrysler Under SEC, FBI Investigation Over Sales Practices

What is interesting is how sales reporting is mostly done by dealers, which FCA attributes through a reporting system called the New Vehicle Delivery Report (NVDR). According to the company, the date of sale recorded in the NVDR system begins the retail customer’s warranty coverage on the vehicle. The recording of the retail sale also triggers FCA U.S.’s obligation to make any manufacturer’s incentive payments to the dealer. Those retail sales are made by dealers out of their own inventory of vehicles.

Now, this is when things get a bit tricky. It is entirely possible for a dealer to “unwind” a transaction recorded in the NVDR system and return the vehicle to the dealer’s unsold inventory. If a dealer “unwinds” a sale, any incentives paid by FCA U.S. is returned and the beginning of the warranty period is canceled. FCA said that these unwinds do occur for a number of reasons, such as a customer’s inability to finalize financing for the purchase or a change in customer preferences. Although, it’s a bit weird that a sale isn’t documented when a vehicle leaves the dealership floor. But one key point is that FCA admits it is possible that a dealer may register the sale in an effort to meet a volume objective, but added that there is “no obvious economic incentive for a dealer to do so, since FCA U.S.’s policy is to reverse all incentives due or paid to a dealer that resulted from the unwound retail sales transaction.”

The automaker believes that most unwinds are recorded shortly following the time the initial sale is registered, but it has not historically reflected either unwinds or the subsequent sales of these vehicles in its sales reporting. To prevent double reporting, FCA blocks the VIN in its NVDR files so that it can’t be entered or counted towards a tally of reported sales in a future report.

As a result, the FCA sales reporting process is being revised and dealer reported sales will be the sum of: all sales recorded by dealers during that month net of all unwound transactions recorded to the end of that month plus all sales of vehicles during that month attributable to past unwinds that had previously been reversed in determining monthly sales. Fleet sales will now be recorded as sales upon shipment by FCA U.S. of the vehicle to the customer or end user. Lastly, other retail sales will either be recorded when the sale is recorded in the NVDR system, or upon receipt of a similar delivery notification.

The company also released an exhibit detailing how the new sales reporting process would have affected its previous reports, revealing that its annual sales volumes under the new methodology for each year in the 2011-2016 period are within approximately 0.7 percent of the annual unit sales volumes previously reported.

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