BIGLAND UNDER THE GUN
Rising star swept up in sales probe
This should’ve been Reid Bigland’s year.
Under his leadership, Fiat Chrysler Automobiles outsold its competitors in Canada for the first time in the carmaker’s history while enjoying an unprecedented streak of rising sales in the U.S. The success earned Bigland a promotion to head Fiat Chrysler’s Alfa Romeo and Maserati brands, making him one of chairman Sergio Marchionne’s most trusted deputies.
Now, Bigland, the 49-year-old head of U.S. sales and chief executive officer of Fiat Chrysler Canada, is at the centre of U.S. criminal and regulatory investigations into whether the company fraudulently hyped its monthly sales numbers, according to people familiar with the matter. The probe has implications that may go far beyond Fiat Chrysler, potentially upending the U.S. auto industry’s way of reporting sales, long designed to showcase them in the most positive light possible.
For many dealers around the U.S., it’s just a given that Bigland, a charismatic speaker with chiselled features and a bodybuilder’s frame, pushes hard for results. For them, he’s the tough but fair leader, at once beloved for his cheerleading yet sometimes feared for his ever-escalating demands for higher sales.
“Reid will tell you what he expects and there’s no sleight of hand,” said Tom Leonard, co-owner of Fury Motors in South St. Paul, Minn. “He gives us a number, and we have to figure out how to hit it.”
Automakers have been leaning on dealers for decades to move cars off their lots, a pressure that has long been accepted as part of the business. It’s not just consumer purchasing at issue. Investors also weigh monthly sales reports closely for signs of how auto companies are faring. But now the U.S. government is questioning whether Fiat Chrysler’s tactics have gone too far.
Bigland’s signature is displayed on documents filed with the U.S. Securities and Exchange Commission containing some of the disputed sales figures. The monthly sales reports often contain statements from Bigland touting monthly results and a streak of continually rising sales that he said went back to 2010. The sales streak was also highlighted in other filings, including Fiat Chrysler’s 2015 annual report.
Federal investigators are eager to determine whether documents were falsified and, if so, whether company officials may have known what they were signing. The investigations follow lawsuits filed this year that allege company officials offered money to dealers to falsify sales.
The company and Bigland declined, through a spokeswoman, to comment. But in a press conference near Detroit late last month, Marchionne said “we continue to collaborate with authorities. We inherited a sales-reporting system that goes back to the 1980s. We now have found a way to do it that has absolute integrity.”
In July, after Bloomberg News reported a criminal investigation was underway, the automaker restated its U.S. monthly sales numbers, noting that out of 7.7 million reported deliveries, only 4,500 vehicles over a six-year time span were in question. And it pointed out that quarterly revenues, based on deliveries from plants to dealers, were not affected by the restatement.
Still, the recalculation shortened the automaker’s previously reported sales-growth streak by three years, ending in 2013 rather than 2016. Fiat Chrysler’s shares fell 4.3 per cent the day after it released the revised numbers and an additional 4.8 per cent the following day.
The news was a blow to investors because Fiat Chrysler has impressed over the years with its steadily rising sales. The automaker’s monthly results, with their drum-like beat of incremental increases, evoke an earlier era when many U.S. companies engineered their earnings to surpass expectations by pennies to please Wall Street.
Earlier this month, FCA Canada also revised its method of calculating sales. As a result, the vehicle sales winning streak that it claimed for more than six years following the 2008-09 recession would have ended in 2012.
U.S. investigators are examining whether Fiat Chrysler improperly adjusted monthly numbers to show growth over the prior year, a person familiar with the matter said. They are looking into allegations the company ordered dealers to create false vehicle purchases, some of which were made in the names of friends and relatives of salespeople, including underage family members, the person said.
The allegations get even stranger. Investigators are probing calls from Fiat Chrysler officials to dealers saying its department of “unnatural acts” was open for business, the person familiar said. The question is whether those calls had any relationship to allegations that company officials were urging dealers to falsify sales to meet reporting targets, the person said.
Top-ranking auto executives have rarely, if ever, been personally ensnared in their companies’ scandals. In cases brought against General Motors for ignition problems and Toyota for uncontrolled acceleration, no high-ranking executives have been charged in the U.S.
That may not always be the case. The Fiat Chrysler investigation comes nearly one year after the Justice Department put in place a policy requiring that all corporate cases include a plan to charge individuals — a policy triggered by criticism that they weren’t being held accountable even as the businesses paid billions of dollars in fines.
“There’s a focus within the Justice Department with holding people responsible for wrongdoing as opposed to just companies,” said Matthew Schwartz, a former federal prosecutor now at Boies, Schiller & Flexner in New York who isn’t involved in the Fiat Chrysler matter. Schwartz added that prosecutors require companies to help with cases against employees if they want to earn co-operation credit. “Virtually every corporate investigation DOJ’s doing nowadays has a hard look at any people involved.”
The government criminal probe follows two lawsuits filed against Fiat Chrysler earlier this year. In one of the suits, Ed Napleton, who owns more than 50 dealerships in five states, alleges a Fiat Chrysler district manager in June 2015 offered him $20,000 if one of his dealerships falsely reported 40 vehicles as sold. The money would be credited to the dealership’s account as “co-operative advertising support,” the suit alleged.
Fiat Chrysler would then mark those same vehicles as unsold at the beginning of the next month, according to the lawsuit. The practice is known as “unwinding ” a sale. Unwinding is a normal practice for returned cars either when customers change their minds about their purchases or fail to get financing.
In an interview with the Windsor Star in February, Bigland dismissed the Napleton lawsuit as “false accusations” levelled by a “disgruntled” dealer.
Fiat Chrysler denied Napleton’s allegations, issuing a statement in January claiming an internal investigation found no evidence of wrongdoing. But in July, the company said that “unwound” sales had not been subtracted from later reports. The subsequent revision shortened to 40 months Fiat Chrysler’s previously reported 75-month record streak of monthly sales growth.
The two lawsuits also allege Fiat Chrysler manipulated sales with incentive programs. Under Bigland’s leadership, these have been among the most expensive in the industry. Maserati of Long Island sued the company in July alleging other dealers were given cash incentives to count cars in their demo fleets as sold, even though there was no retail buyer at the time the sales were counted.
Interviews with dealers around the country show how such tactics work. With a few days left in June, Jackson, Mich., dealer Wes Lutz’s Extreme Chrysler-Dodge-Jeep dealership needed to move 10 more cars to hit headquarters’ goal that month of 78 sales. He was highly motivated by the lure of receiving $900 from the automaker for each sale. But if he missed the target in the so-called stair-step program by even one car, he would forfeit his entire $70,200 payout. To avoid that happening, Lutz turned to another Fiat Chrysler program that allows dealers to count loaner cars as sold vehicles. Not only was Lutz able to reach his target, he said he received $5,500 per car for placing 10 in his loaner fleet. Those models were then accounted for as sold. Lutz later sold them as used vehicles.
“The incentive deals are just a way to move product,” Lutz said last month. “Other carmakers are also doing this in some way.”
Paul Walser, who owns dealerships selling Chrysler, Jeep, Dodge and other brands in Minneapolis, said Bigland “is very focused and cares infinitely about his professional journey.” But Walser thinks incentives have got out of hand. “Stair steps are the worst thing that has happened to our industry,” he said. “You create a high-pressure environment where people fear for their jobs and dealers fear for their franchise agreements.”
Bigland has a long track record of success. In 2011, Marchionne tapped him to run the automaker’s U.S. sales. By then Bigland had already overseen the growth of Canadian market share, which has since increased 41 per cent since Chrysler’s 2009 bankruptcy, putting the company within striking distance of Ford there.
You create a high-pressure environment where people fear for their jobs and dealers fear for their franchise agreements.