Earlier this month it was reported Fiat Chrysler was under investigation from the Securities and Exchange Commission and the Justice Department for falsely inflating its U.S. sales figures. Today, FCA released a statement not only defending itself and the way it reports sales, but also outlining a new way it will report monthly sales figures going forward.
In 2015, an internal review performed by FCA reportedly found evidence of as many as 6,000 vehicle sales that had been falsely reported. In today’s statement, FCA explains how these false sales did not affect the integrity of its reported revenues in its financial statements and only its monthly reported sales figures.
The automaker’s unit sales data consists of three parts: sales made by dealers to customers, sales of vehicles shipped directly by FCA to fleet buyers and other retail sales including vehicles delivered to employees and sales in Puerto Rico. Dealer sales data is collected through New Vehicle Delivery Reports (NVDR), which are filled out by the dealer. The reports trigger the customer’s warranty coverage on the vehicle and FCA’s incentive obligations to the dealer, which may be based on a certain model sold or volume objectives, for example.
An NVDR report represents sales made by dealers out of their own inventory of vehicles that they purchased from FCA. The automaker says a vehicle sale is represented in their monthly revenues when the dealer purchases it from them, not when the dealer reports to them a retail sale. Dealers have the ability to “unwind,” an NVDR transaction, which cancels the warranty period on the vehicle and reverses incentives given to them by FCA. An “unwind,” may happen if a customer cannot finalize financing for a vehicle or changes their mind, for example.
FCA says it is “admittedly also possible,” for a dealer to register sales and then quickly unwind them to meet a monthly volume objective, however this would result in no monetary gain for the dealer as unwinding an NVDR report automatically reverses the incentive. Most unwinds are done shortly after the vehicle is initially reported in the NVDR system, so FCA “has not historically reflected either unwinds or the subsequent sales of these vehicles in its sales reporting.”
The automaker also explains how for fleet sales, which are not recorded using the NVDR system, it maintains a “reserve” of vehicles that have been shipped to customers but not reported as sold in monthly sales reports. It’s still looking into why this practice exists within the company, but believes it’s meant to exclude from reported sales vehicles that are not yet deployed in the field as sales data is “intended to reflect vehicles put in use during the month.”
To prevent a dealer from registering a sale and then subsequently “unwinding” it, whether it’s on purpose for self gain or a true “unwind,” FCA will implement a new methodology for calculating monthly sales. A three-category system will still be in place, however unwound dealer sales will now be deducted from the total amount of sold vehicles that month. Fleet sales will be recorded upon shipment, while Puerto Rican sales will also be recorded the same way as U.S. sales. Other deliveries, such as those to FCA employees, will be recorded when a receipt is submitted.
Using this new methodology, FCA’s streak of year-over-year monthly sales improvements since April of 2010 would have actually ended in in September 2013, when year-over-year sales fell three percent. Sales also dipped in by one percent in August 2015 and seven percent in May 2016. The automaker also says about 4,500 “unwound” cars reported in sales data between January 1, 2011 and June 30, 2016 have still not been sold.
FCA says it will report its July 2016 monthly sales figures using its new methodology.