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September 23, 2019Cart

Business

by Westchester County Business Journal
by WCBJ

Larchmont Chrysler dealer says rampant brokering, flawed formula distort sales targets

A Larchmont auto dealer is fighting Fiat Chrysler over a sales quota metric it claims is flawed and over alleged illegal brokering it says is undercutting its business.

Larchmont Chrysler Jeep Dodge petitioned the state Department of Motor Vehicles last month to restrict how FCA US – formerly the Chrysler Group – sets sales targets.

“Larchmont is a family owned and operated business that plays by the rules in a schoolyard of bullies overseen by a principal who condones, fosters and rewards improper behavior,” Larchmont’s attorney, Russell P. McRory, said last year in a letter to FCA.

“FCA is breaching the terms of its standard dealer agreement by illegally incentivizing unscrupulous brokering activity by Larchmont’s peer dealers.”

Larchmont Chrysler Jeep Dodgeis owned by Alfredo Gulla, who has operated Chrysler franchises, including the Alfa Romeo and Fiat brands, since the 1960s.

The Auburn Hills, Michigan, auto manufacturer notified Larchmont in February 2018 that it was at risk of defaulting on its contract “due to your dealership’s failure to meet its agreed upon performance obligations.”

Dealers are expected to equal or exceed expected sales, based on a ratio of statewide market share for each vehicle line and the number of new registrations by vehicle types in the dealers’ markets.

In 2016, FCA noted, Larchmont Chrysler Jeep Dodge sold 704 cars but fell short of its target of 849, by 145. In 2017, it sold 560 cars, but fell short of its target of 761, by 201 cars.

Larchmont Chrysler Jeep Dodge claims that FCA’s formula violates a 2016 New York Court of Appeals decision, in Beck Chevrolet vs. General Motors, that holds that local market conditions must also be considered. Domestic brands, for instance, are more popular upstate, but foreign imports are more popular in Westchester and other downstate markets.

The Larchmont dealership also argues that FCA encourages “rampant brokering” by competitors who can sell cars at significant discounts.

Dealers who supply brokers can get financial bonuses for large-volume sales, Larchmont alleges.

Brokers also have lower overhead than traditional dealerships, news accounts have noted, because they do not have to stage large showrooms or carry large inventories.

Larchmont Chrysler Jeep Dodge claims it has photographs of a 2018 Jeep Wrangler, sold by Danbury Dodge Jeep Chrysler, as it was delivered to VIP Auto in Mamaroneck. The Danbury dealer, the Larchmont dealership said, is not licensed by New York to deliver cars to VIP Auto.

Larchmont also said it has recorded conversations with current and former employees of other dealerships that engage in brokering.

“Favored dealers regularly negotiate volume purchases with FCA personnel in exchange for enhanced and secret incentive payouts,” McRory states in a letter to FCA. “It is obvious that an organized scheme exists to sell vehicles through brokers – often across state lines – and FCA rewards specific levels of volume knowing that it is rooted in illegal conduct.”

An FCA spokesman declined to discuss the matter, but a company lawyer denied the allegations in letters to the Larchmont dealership.

FCA said it does take into account local conditions when calculating sales targets. The metric is a contractual obligation, the company claims, and the state court ruling does not apply because its formula is different than GM’s metric.

FCA also states that it does not believe “any alleged brokering could be affecting Larchmont to a sufficient degree” to warrant an adjustment to the metric.

As to dealers participating in improper brokering and to secret monetary incentives, FCA said, Larchmont should provide more evidence for FCA to consider.

Larchmont Chrysler Jeep Dodge asked the state DMV to hold an administrative hearing and to enjoin FCA from using the sales target formula “in an unreasonable, arbitrary and unfair manner.”

FCA had the dispute moved to federal court in White Plains on May 6.