Could The FBI’s Investigation Into FCA Spell The End For Dealerships As We Know Them?

I take a pseudo conspiracy-theorist look at the current FCA sales debacle and see potential for long-overdue change in the dealership model
Could The FBI’s Investigation Into FCA Spell The End For Dealerships As We Know Them?

Earlier this year, a fairly large American auto dealership group brought a racketeering suit against Fiat Chrysler Automobiles. The suit, brought forth by Napleton Automotive Group based near Chicago, claimed that FCA offered incentives - AKA a crapload of money - to specific dealerships if they falsely reported more monthly sales. FCA responded by basically saying the claims were ridiculous and that the lawsuit should be dismissed.

Flash to a couple weeks ago, when word came out that the FBI and the Securities and Exchange Commission (SEC) launched an investigation into FCA for their sales reporting practices. By “launched an investigation” I mean they apparently raided offices and homes of current and former FCA employees, not to mention paying a visit to FCA headquarters in the Detroit suburb of Auburn Hills.

This story has been rocking all the major auto sites since it broke. I’m not here to give you a play-by-play of the action because that crapola is positively boring. But I think it does raise an interesting look at what could be the much anticipated demise of the old way major manufacturers sell cars. Let me explain.

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The FCA investigation is ongoing, but the facts aren’t really in FCA’s favour right now. We have a lawsuit filed against them for fluffing sales, followed by FCA’s rebuttal that specific dealerships within the group had been underperforming in sales and not meeting FCA quotas, and that this suit was simply a baseless retaliatory strike and smear campaign.

In 2015, Napleton Auto Group sold 22,670 cars for a total revenue of $1.49 billion dollars. Yes, billion. I’ll just that number sink in while we all reconsider the definition of “underperforming.” And then of course FCA comes under federal investigation for its sales reporting practices.

I’m not saying FCA is guilty. But this is starting to look like a college weekend of bad decision making followed by a slow unraveling of your alibi, with your girlfriend standing at the door demanding an explanation.

Here’s the thing. Auto manufacturers have always tried to stack the sales deck in their favour. “Punching” is a common term used for dealers buying cars at the end of a month or quarter to pad sales figures for themselves, and subsequently, for manufacturers. If it sounds sketchy, it is. But it also happens to be legit. Dealers buy the cars, registrations are set, and warranty clocks start ticking even if the car just sits on the lot as a demo or loaner until it’s sold to an actual customer.

Could The FBI’s Investigation Into FCA Spell The End For Dealerships As We Know Them?

Should the claims against FCA be true, then the company definitely crossed a line from sketchy to shady, possibly going all the way to downright ugly. More importantly, I see it as a kind of last gasp for the old-school manufacturer/dealership mindset for sales that has existed since the car was invented, despite the global evolution of business into the information age.

What is that mindset? Shovel sales numbers and loads of crap down peoples’ throats and they’ll buy, because they don’t know better. If you don’t think that’s a viable tactic, ask yourself this: would Ford have sold over 3 million Pintos if Google and Facebook had been around in the 1970s?

Photo Credit: Wikimedia Commons
Photo Credit: Wikimedia Commons

Now consider this: after a very public and messy government-backed Chrysler bankruptcy (which was preceded by a very public and messy affair with Daimler, which was preceded by another bankruptcy in the 1980s), FCA has been on a roll. When the lawsuit became known back in January, FCA had recorded over five years of consecutive sales gains. When the FBI and SEC launched their investigation a couple weeks ago, that streak was up to 75 months.

75 months of continual sales improvement; the longest sales hot streak in the entire auto industry. That’s the sort of thing that can bring a company back from the brink of disaster. How convenient.

I won’t deny that FCA is making some neat cars that people want to buy, and I’m not saying their sales streak is fabricated. But for a company trying to get some mojo back after literally three decades of blemishes and a near-death experience in 2009, a 75-month winning streak is a huge deal, and FCA is leveraging it for every sales and marketing angle possible.

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Unfortunately for FCA, this isn’t 1986. Consistently improving sales figures can’t distract people from learning about the same old Chrysler quality control issues like weak transmissions, electrical gremlins and rust-prone sheet metal that still plague their models, even after all these years. That information is at everyone’s finger tips, and if I may offer a moment of speculation, it could be motivation for FCA to falsify sales figures. Not to mention how much company investors and Wall Street types love to see continually improving sales. But now we’re getting into economics and stuff, and that puts me to sleep just as quickly now as it did in high school. There’s a reason I’m a writer and not an accountant.

I’ll just say this. Should these allegations against FCA be true, I think it could finally lead to a long-overdue modernization of the whole convoluted process of buying cars through double-talking dealerships, with the goal being to post good sales figures instead of, you know, actually selling cars. Admittedly it’s a stretch, but that is the eventual future for the auto industry, and if you need proof, just look at Tesla’s ongoing battle in the States to sell cars directly to consumers.

I suspect this future is closer than major auto manufacturers would like to admit. And frankly, it’s about damn time.

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Comments

Ryan Conley

I don’t have an opinion either way. On one hand, I know that if you’re buddies with a salesman/owner you can get a sweet deal on a car. But if not, dealers tend to screw you every chance they get. I think by dealing directly with the manufacturer, you would have to go through less BS, but you probably won’t get as good a deal as you could with a regular dealership

07/30/2016 - 12:58 |
2 | 0

Screw you is an understatement, my grandparents bought a new dodge truck, its basically a base model with electric seats, they paid more than 40 grand for it. I personally think its kinda their falt for actually believing the salesman, i m ean they thout they bought a 6 cylinder and its a hemi.

07/30/2016 - 13:35 |
1 | 0
Duellym

As someone with 6 of their wonderful products in my family, i think this may be good. If they loose some money from all of this it may force them to build better automobiles that work and won’t rust out on us.

07/30/2016 - 13:37 |
27 | 2

Agreed, this is half the reason my dad is scared to buy a hellcat, the other half being 707hp

07/30/2016 - 15:00 |
10 | 0

They’ve lost tons of money a bunch of times in the past. Didn’t stop the 2010 Charger I made the terrible mistake of buying from being a boat-sized trashcan of rocker arm failures, coil pack failures, and EGR seal failures (that last one actually causing the car to randomly stall out in the street).

07/31/2016 - 01:28 |
2 | 0

Also agreed, my dad’s 2001 dodge ram 3500 van has paint that peeled and you can see rust.

08/01/2016 - 15:54 |
0 | 0
Kyle Ashdown

Great work Christopher, I definitely agree that the dealership model needs to be completely overhauled in order to deal with this problem. Having a “just in time” model (like Tesla) would reduce the number of fake sales by a significant amount. Unfortunately, car dealers have a pretty strong union behind them (and therefore have great lobbying power), so switching over to the new system would be unlikely, for now.

I made a post a while back about the FCA scandal as well, it covers the actual scheme itself in a little bit greater detail. If anyone is curious, feel free to check it out!

07/30/2016 - 16:20 |
4 | 0
RodriguezRacer456 (Aventador SV) (Lambo Squad)

We’ll probably see the end of this then

07/30/2016 - 17:38 |
20 | 0
CalmnessAndSandwiches

Give me a break. Dealerships aren’t going anywhere for a long time, maybe forever.

07/30/2016 - 18:27 |
0 | 0
V-Tech and EcoBoost kicked in yo

Unfortunately, dealerships have vice-grip on the auto economy. Companies like GM are kinda forced to support them so many dealerships sell their cars.

07/30/2016 - 21:38 |
0 | 0
Anonymous

I hate FCA their cars have been garbage forever and should have never been bailed out. I hope this puts an end to their rusty bucket mobiles. I dont understand how an 8 year old truck can have baby sized holes on the doors from rust, its baffling how low their quality is and dont deserve to be on the road.

07/31/2016 - 01:41 |
0 | 1
Mike deluca

In reply to by Anonymous (not verified)

Have you taken care of the car? Dont expect it take a beating simply because its a truck, paint needs cleaned and waxed, motors need checked, etc… point is sh*t breaks, cars are being improved, unless people tell FCA and other companies about issues…they cant fix it!

07/31/2016 - 21:02 |
1 | 0
M3R1CA

In reply to by Anonymous (not verified)

I’m not a big Mopar guy, never will be. They do seem to be put together kinda weak. Test drove a brand new 200s with 21 miles on it and it was in limp mode before even going a block.

07/31/2016 - 23:01 |
0 | 0
Henk Roux

To break from the dealership model is to also break from their service centers. I’d love for specialty service shops to spring up everywhere, with their reputation and profit margins riding solely on their quality of work instead of on their sales reps on the floor.

07/31/2016 - 18:14 |
1 | 0
H5SKB4RU (Returned to CT)

What we are?
-american car makers!
What we do?
-crappy unreliable cars!
How we will solve this?
-banning all foreign cars!

07/31/2016 - 21:05 |
2 | 1

I’d still take an American anything over euro trash in terms of reliability and value.

07/31/2016 - 22:59 |
1 | 1
Anonymous

Enter your comment…

08/01/2016 - 02:37 |
0 | 0