Last week, Automotive News reported that General Motors is suing one of its dealers in the U.S. over allegations of “faked” vehicle sales.
Lujack Chevrolet, in Davenport, Iowa, which is owned by Gurley Leep Automotive, is being accused of claiming incentives and collecting GM Standards of Excellence payments for cars that were never in fact, actually sold to legitimate buyers. Instead these vehicles were transferred to affiliate dealers within the Leep group, in what the firm terms “Daisy Chain,” sales.
According to GM, the vehicles in question, were supposedly sold to hundreds of retail customers, but these “customers” never actually took delivery of their cars, nor did they purchase them through proper dealer sales contracts, or operate them for personal use. GM says that by claiming incentives and bonus cash payments, without having earned the right to do so, Lujack Chevrolet is in breach of contract. As a result, General Motors is seeking an injunction against the dealership, as well as damages for fraud and conspiracy.
What’s also interesting is that Lujack Chevrolet was one of the stores earmarked for closure following GM’s bankruptcy and restructuring in 2009 and indeed the suit says an agreement was signed between Leep and GM for winding down the store. However, following an arbitration, the franchise was reinstated and although sales were steady through June 2012, from there they dramatically increased from under 100 units per month to 282 alone in November. The federal court suit against Leep said that the dealership sold 254 vehicles to just 13 customers between October 5 and December 5, 2012 with one employee at one of the affiliate stores purchasing 27 vehicles alone during that period.
Although the lawsuit is against just one dealership, according to Automotive News it highlights a bigger problem. In 2012 GM released a memo which said that a number of dealers had been “gaming the system,” in other words, looking at ways to artificially increase their inventory, since GM had in place a volume oriented bonus system, in which the more cars a dealer was able to sell, the more cash in terms of bonuses that dealer could receive under the Essential Brand Elements Program. In turn, the more cash it received, the more vehicles it could order, since the incentives were tied to each car or truck the dealer purchased from GM.
Critics of the GM program have cited the fact that Essential Brand Elements gave preference to larger dealers and dealer groups since they were able to often purchase more vehicles and thus receive the lion’s share of bonuses, while smaller stores were essentially left out in the cold.
The effort to push for ever more volume and the resulting over capacity and ever greater incentives necessary to move metal off dealers’ lots have been seen as a major factor for GM’s bankruptcy in 2009 and although today, the automaker says it has learned from past mistakes, the cloud of high, volume driven incentives still looms large on the horizon.
