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Fiat Chrysler dumped 40,000 unordered vehicles on dealers

In a move that echoes recent history, Fiat Chrysler has been making more cars and trucks than dealers in the U.S. are willing to accept, with Bloomberg reporting that at one point the automaker had built up a glut of around 40,000 unordered vehicles. That’s led some dealers to accuse FCA of reviving the dreaded “sales bank” accounting practice of obscuring inventory to improve the balance sheet. The company reportedly began building up its inventory of unordered cars this summer despite an industrywide slowdown in sales and an eagerness by some dealers to thin their inventories because rising interest rates are making it more expensive to hold unsold cars. The inventory build-up also coincided with Fiat ChryslerÂ’s efforts to find a merger partner, first with Renault, which fell through, then last monthÂ’s announcement that it will merge with FranceÂ’s PSA Group. FCA denies any such scheme and tells Bloomberg the rising inventory is down to a new predictive analytics system designed to better square supply with demand from dealers that is helping the company save money and narrow the numbers of unsold vehicles. The company recently agreed to pay a $40 million civil penalty to the U.S. Securities and Exchange Commission to settle a complaint that it paid dealers to report fake sales figures over a span of five years. While no one is suggesting that FCA is in dire financial straits — the company saw higher than expected earnings in the third quarter and record profits in North America — the practice has strong historical precedent by Chrysler, which built up bloated inventories in the run-up to its two federal bailouts, in 1980 and 2009. It was also common at GM and Ford during the 2000s, when all three Detroit automakers struggled with excess manufacturing capacity and plummeting sales in the lead-up to the Great Recession. Back in 2012, CFO Magazine wrote about a report that explained automakersÂ’ rationale for the practice and how it works: Say fixed costs for a given factory are $100, and that the factory can make 50 cars. Consumers, however, demand only 10. Under absorption costing, if the company makes all 50 cars, its cost-per-car is $2. If it makes only up to demand, or 10 cars, the cost-per-car is $10. Although each car adds variable costs for steel and other parts, if those costs are low, the company still has an incentive to make more cars to keep the cost-per-car down.

EPA suspected Fiat Chrysler of using 'defeat device' in 2015

U.S. regulators told Fiat Chrysler Automobiles in November 2015 that they suspected some of the automaker's vehicles were equipped with secret software allowing them to violate emission control standards, according to emails disclosed on Friday. The U.S. Environmental Protection Agency and California Air Resources Board accused Fiat Chrysler in January of using the software, known as a "defeat device," to illegally allow excess diesel emissions in 104,000 Jeep Grand Cherokees and Dodge Ram 1500 trucks built between 2014 and 2016. Byron Bunker, director of the EPA's Transportation and Air Quality compliance division, said in a January 2016 email to Fiat Chrysler, obtained by Reuters under the Freedom of Information Act, that he was "very concerned about the unacceptably slow pace" of the automaker's efforts to explain high nitrogen oxide emissions from some of its vehicles. Nitrogen oxide is linked to smog formation and respiratory problems. Bunker's email said the EPA had told Fiat Chrysler officials at a November 2015 meeting that at least one auxiliary emissions control device on the car maker's vehicles appeared to violate the agency's regulations. Mike Dahl, head of vehicle safety and regulatory compliance for Fiat Chrysler's U.S. unit, responded in a separate email that the company was working diligently and understood the EPA's concerns. He added that if the EPA identified Fiat Chrysler vehicles as containing defeat devices it would result in "potentially significant regulatory and commercial consequences." The documents redacted the vehicles named, but two officials briefed on the matter said they referred to diesel models. The EPA's November 2015 meeting with Fiat Chrysler came two months after Volkswagen AG, mired in a major tailpipe emissions scandal, admitted to installing secret defeat device software in hundreds of thousands of U.S. diesel cars to make them appear cleaner than they were on the road.

FCA fibbed on sales according to internal report

Following last week's news that Fiat Chrysler Automobiles (FCA) is under investigation by the Department of Justice and Securities and Exchange Commission for allegedly fudging sales figures, a new report in Automotive News says an internal investigation at FCA uncovered misreported sales. According to the AN story, 5,000 to 6,000 vehicles from various FCA brands were reported sold by dealers, but no customers existed for those cars. FCA sales chief Reid Bigland has already put a stop to the practice. One potential reason for the practice was to maintain the company's month-to-month sales increase streak, currently at 75 months. In April, FCA added a lengthy disclaimer to its sales announcements: "FCA US reported vehicle sales represent sales of its vehicles to retail and fleet customers, as well as limited deliveries of vehicles to its officers, directors, employees and retirees. Sales from dealers to customers are reported to FCA US by dealers as sales are made on an ongoing basis through a new vehicle delivery reporting system that then compiles the reported data as of the end of each month. "Sales through dealers do not necessarily correspond to reported revenues, which are based on the sale and delivery of vehicles to the dealers. In certain limited circumstances where sales are made directly by FCA US, such sales are reported through its management reporting system." FCA did not provide comment to Automotive News. Click through for the full story and more details. Related Video: Earnings/Financials Government/Legal Chrysler Dodge Fiat Jeep RAM sales Sergio Marchionne FCA USDOJ reid bigland