As the global automobile market continues down the path of recession, it isn't just tensions with consumers that are rising.
Fiat Chrysler is apparently at odds with many of its U.S. dealers after trying to get them to accept inventory of about 40,000 vehicles that they didn't order, according to Bloomberg.
Four dealers came forward and said that the company has revived a "sales bank", which is a decade old practice that is frowned upon by investors and analysts because it can muddy the waters of an automaker's inventory figures. Dealers dislike it because it creates pressure to take delivery of vehicles they don't want.
Chrysler had used sales banks in the two times it needed eventual rescues from the U.S. government - in 1980 and 2009.
While the company doesn't appear to be in the same type of distress, the tactic has been brought up again as the company has pursued mergers with Renault and PSA Group.
Sales banks date back to the 1960s and were sworn off by Lee Iacocca in 1979. He called the practice in his autobiography “nothing more than an excuse to keep the plants running when we didn’t have dealer orders for the cars.”
Fiat denies that it has started a sales bank, stating that it "put a predictive analytics system in place early this year that aims to better align its supply chain and manufacturing plans with anticipated dealer orders."
The company said: “We’re producing pre-specificationed vehicles against predicted demand so the right vehicles are available when dealers need them.”
The strategy was put in place by North American Chief Operating Officer Mark Stewart, formerly of Amazon. Putting the system in place and extending the lead time it took for dealers to order cars saved the company about $441 million this year, through Q3. The company has reduced inventory by about 120,000 during that span, Stewart says.
Fiat had started to accumulate the inventory glut over the summer, with dealers looking to pare back inventory after being hit by rising interest rates that increased the cost of holding cars. Other dealers blamed lack of incentive support from the company. And Fiat is lagging behind the rest of the industry in moving old product off its lots: it took Fiat Chrysler dealers 101 days on average to sell each vehicle during the quarter, 24 more days than the industry average.
Niel Golightly, Fiat Chrysler’s global chief communications officer, said that the company's modeling has proven accurate and that Fiat has ended quarters with as few as 1,000 vehicles that it has ordered and been unable to sell to dealers.
At the end of Q3, the number of unordered cars was down to about 5,000 vehicles. While that number it low, it still left some dealers "angered" by pressure tactics that they say can "lead to bad behavior".
Chief Executive Officer Mike Manley said on a conference call last quarter: “Working with our dealer network to achieve and maintain discipline with stock levels continues to be one of our top priorities.”
And, hey, it's different this time, right? David Kelleher, a Philadelphia-area Fiat Chrysler dealer said: “They’re not making this a practice. It’s a one-off. That’s in my rear-view mirror, and I’m pleased with the way Chrysler handled it.”
Chrysler also recently agreed to pay a $40 million penalty related to years of fraudulent sales reports, according to the SEC.