Napleton Auto Group RICO suit says Fiat Chrysler dealer incentive program inflates sales figures

By Jonathan Bilyk | Jan 13, 2016

The owners of the Napleton network of auto dealerships have brought a federal racketeering action against Fiat Chrysler, alleging the automaker has used a dealer incentive program to falsify its vehicle sales figures, while also jiggering its dealership market configurations to place dealers located in wealthier metropolitan areas, like those operated by Napleton, at a competitive disadvantage for leverage.

On Jan. 12, two Napleton dealerships – Napleton’s Arlington Heights Motors Inc., doing business as Napleton’s Arlington Heights Chrysler Dodge Jeep Ram, and Napleton’s North Palm Auto Park Inc., doing business as Napleton’s Northlake Chrysler Dodge Jeep Ram, in Lake Park, Fla. – file suit in Chicago federal court against FCA US LLC, the North American arm of Fiat Chrysler Automobiles.

The Napleton dealers are part of a network of dozens of auto dealerships operated by the Westmont-based Napleton Automotive Group in Chicago’s suburbs, as well as elsewhere in Illinois, Florida, Indiana, Missouri and Pennsylvania. The dealerships sell vehicles spanning a range of automotive brands, but many Napleton dealers are affiliated with brands sold by FCA.

The lawsuit alleged FCA has engaged in fraud, as well as violated the federal Racketeer Influenced and Corrupt Organizations Act and other federal and state laws in Illinois and Florida, through its execution of its so-called volume growth program, or VGP.

According to the complaint, FCA sells the program to dealers as a fair and even-handed way of rewarding dealers with financial incentives for strong sales results. However, Napleton’s lawsuit has alleged the automaker has instead designed the VGP to “coerce” and “strong-arm” dealers to “falsely report sales” of vehicles, all in an effort to allow FCA to “create the appearance that FCA’s performance is better than, in reality, it actually is.”

“FCA has every reason to continue to be opaque about this issue, as it would not be helpful for the truth to come to light at the same time as FCA may be pursuing mergers and other business opportunities,” Napleton’s lawsuit said.

According to the complaint, the VGP allegedly worked by paying dealers subsidies on new automobile sales. These subsidies are not available to dealers not participating in the VGP.

Napleton noted FCA’s assertions concerning its purportedly even-handed administration of the VGP and its other policies toward dealers enticed the Napleton group to invest more than $100 million in its dealerships, including an $18 million investment to relocate its Chrysler dealership from Des Plaines to Arlington Heights.

Napleton’s complaint alleged FCA has also dangled additional financial incentives, disguised using various bookkeeping designations, to individuals working at dealerships, to prompt greater sales figures.

In effect, FCA’s policies have worked to encourage dealers to falsely “pump up” vehicle sales figures.

For instance, the complaint included a specific allegation of an instance in which FCA representatives allegedly asked Napleton personnel, including Napleton principal Edward F. Napleton, to falsely report dozens of new vehicle sales in exchange for $20,000 “which would reach the (Napleton) accounts as a credit under the disguise as cooperative (Co-Op) advertising support.” The complaint alleged Napleton “soundly rejected” the proposal, and warned FCA the offer “appeared improper if not outright illegal,” and told “FCA that it should refrain from this practice in the future.”

Napleton further alleged FCA has worked to avoid detection of the allegedly fraud-filled program by tweaking the program’s policies to, among other things, allow dealers to “disavow” the allegedly false sales “after the fact even though they had already been reported and recorded by FCA as sales.” Allowing the dealers to “back-out” the sales would allow FCA dealers to continue to offer full factory warranties on the vehicles they had allegedly initially reported as sold.

Napleton further alleged FCA would coerce its dealers through the alleged manipulation of the dealerships’ “sales zones,” or exclusive market territory. While dealers are promised a certain geographic area based on a formula calculating market share, Napleton alleged FCA has allegedly manipulated the market areas by forcing dealers to compete against brands that are out of their league.

The complaint noted, for instance, that FCA “demands its dealers achieve market share pitting its non-luxury sport utility vehicle” – namely, the Jeep Grand Cherokee – “against premium brand SUVs … to artificially inflate the market and drive down its dealers market share.”

Napleton said this tactic has been particularly harmful to dealerships in wealthier, more urban areas, like the Chicago area and southern Florida. While FCA dealers still sell a large volume of Jeep Grand Cherokees in those areas, more premium luxury SUVs are also sold in those regions than in other, more rural market areas, Napleton said, making it appear the dealers in the more urban market areas may have a lower market share or are not hitting sales targets, as compared to dealers located elsewhere.

This manipulation, Napleton alleged, allowed FCA to use its market share metric system “not … as a tool to evaluate its dealers, but rather to cover up” its alleged conduct under the VGP.

“FCA also consistently has used (the alleged market share manipulation) to directly control and otherwise intimidate dealers to bow to its will under the constant threat of the termination of their dealerships for contrived ‘defaults’ in FCA’s Dealer Agreement,” the complaint said.

Napleton’s complaint alleged FCA has repeatedly threatened to terminate its dealership agreement for Napleton’s Northlake Chrysler outlet.

Napleton is represented in the action by Napleton’s assistant general counsel, Kevin M. Hyde.

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FCA US Napleton Automotive Group

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