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NY dealers threaten to sue Fiat Chrysler over sales tactics

Gabrielle Coppola

Fiat Chrysler Automobiles NV dealers in New York escalated a months-long feud with the manufacturer regarding its sales practices by threatening to sue over incentives that may disadvantage smaller stores.

The cease-and-desist letter sent this month by the New York State Automobile Dealers Association is the starkest indication yet of tensions that Bloomberg News first reported in November. The frustrations spring from Fiat Chrysler adopting a system that attempts to anticipate the types of vehicles dealers are likely to order and aligns those internal analytics with manufacturing.

This Nov. 30, 2010, file photo, shows a row of Jeep Grand Cherokees on a dealership lot. Fiat Chrysler's use of $1,500 “bonus cash coupons” to incentivize dealers to purchase overstocked vehicles from the manufacturer is seen by some as an unfair advantage for larger dealerships with "broader spending resources allotted for vehicle acquisitions."

Mismatches between the models Fiat Chrysler has been building and the cars and trucks that dealers actually order saddled the company with tens of thousands of unassigned vehicles last year. The automaker has cleared that inventory by offering incentives that have been cause for consternation at the dealer level.

Fiat Chrysler has been sending daily emails to dealers across the country offering $1,500 “bonus cash coupons” to entice them to take cars from its inventory pool, according to the letter Robert Vancavage, the president of the New York dealers association, sent to Reid Bigland, the automaker’s U.S. sales chief. Dealers can apply the coupons to any model. The more cars and trucks they agree to take on from the pool, the more funds they get from the manufacturer to help sell cars without sacrificing their own profits.

“A larger dealer with broader spending resources allotted for vehicle acquisitions will have an unfair advantage over a smaller dealer,” Vancavage wrote in the Feb. 6 letter, which was viewed by Bloomberg News. “In practice, the programs have created discriminatory and illegal two-tiered pricing in favor of larger, competitive Fiat Chrysler dealers compared to smaller dealers.”

Vancavage didn’t respond to requests seeking comment on the letter. A Fiat Chrysler spokesman declined to comment.

Dealers have said Fiat Chrysler’s practices amount to running a sales bank. The decades-old practice is frowned upon in the industry because it’s seen as a way for manufacturers to put off having to slow production.

Fiat Chrysler has disputed the characterization and said the buildup of unassigned cars has been a side effect of a data-driven production strategy that it says is reducing costs. The company expects to keep boosting profit this year by increasing sales of Ram pickups as it finalizes a merger with France’s PSA Group.

Dealers typically place orders with manufacturers about a month in advance of taking delivery, and the company tailors production to meet that demand. Vancavage wrote that the approach Fiat Chrysler has taken lately “appears to be outside FCA’s normal vehicle allocation to dealers.”

In September, Fiat Chrysler agreed to pay a $40 million penalty related to filing years of sales reports the U.S. Securities and Exchange Commission said were fraudulent. The agency investigated after a disgruntled dealer filed an antitrust lawsuit that was later settled.