NEW YORK -- Fiat Chrysler Automobiles NV has been manufacturing more cars and trucks than its U.S. dealers are willing to accept, at one point creating a nationwide glut of about 40,000 unordered vehicles and stoking tension with some of its retailers.
Four dealers, two of whom spoke on the condition they not be named, said Fiat Chrysler has revived what's known in industry circles as a "sales bank." The practice is decades old and frowned upon by investors and analysts because it can obscure an automaker's inventory figures. Dealers don't like it because it can amp up the pressure companies place on them to stock vehicles they don't want.
Chrysler implemented sales banks in the run-up to the two times it needed rescues from the U.S. government, in 1980 and 2009. While the company is nowhere near that sort of trouble -- it just reported record quarterly profit -- the surging supply of unassigned vehicles coincided with a period when the company was pursuing mergers. After efforts to combine with France's Renault SA fell through, it announced a tie-up with Peugeot owner PSA Group last month.
Fiat Chrysler denies that it has restarted a sales bank. The company says 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.
"We're producing pre-specificationed vehicles against predicted demand so the right vehicles are available when dealers need them," said Niel Golightly, Fiat Chrysler's global chief communications officer. The modeling has proven accurate, he said, as Fiat Chrysler has ended quarters with as few as 1,000 vehicles that it's ordered and been unable to sell to dealers.
At the close of the third quarter, the number of unordered cars was down to roughly 5,000 vehicles. While that amounts to a rounding error for a company that sells more than half a million vehicles a quarter in the U.S., the process still left some dealers angered by pressure tactics they say can lead to bad behavior.
Fiat Chrysler recently agreed to pay a $40 million penalty related to filing years of sales reports the U.S. Securities and Exchange Commission said were fraudulent. One way the company inflated figures, the SEC said in September, was by paying dealers to report fake sales.
The predictive analytics strategy was put in place by North American Chief Operating Officer Mark Stewart, who joined in December from Amazon.com Inc. Implementing the system and increasing the required lead time for dealers to order cars saved the automaker about 400 million euros ($441 million) this year through the third quarter, according to Golightly. The company has reduced inventory by about 120,000 cars during that span, he said.
Auto sales have been slowing industrywide this year, and the Italian-American automaker started building up the bank of unassigned cars this summer. Some dealers were looking to pare back inventory after being burned by rising interest rates that increased the cost of holding cars, and what some say was a lack of incentive support from the company to boost sales of older models.