The Securities and Exchange Commission recently announced $18M in fines that BMW and two of their subsidiaries must pay for having provided misleading and inaccurate retail sales information to their investors.
The SEC report reads:
According to the SEC’s order, from 2015 to 2019, BMW inflated its reported retail sales in the U.S., which helped BMW close the gap between its actual retail sales volume and internal targets and publicly maintain a leading retail sales position relative to other premium automotive companies. The order finds that BMW of North America LLC (BMW NA) maintained a reserve of unreported retail vehicle sales — referred to internally as the “bank” — that it used to meet internal monthly sales targets without regard to when the underlying sales occurred. The order also finds that BMW NA paid dealers to inaccurately designate vehicles as demonstrators or loaners so that BMW would count them as having been sold to customers when they had not been. Additionally, the order finds that BMW NA improperly adjusted its retail sales reporting calendar in 2015 and 2017 to meet internal sales targets or bank excess retail sales for future use. As a result, according to the order, the information that BMW provided to investors in the bond offerings by BMW’s U.S. financing subsidiary, BMW US Capital LLC, and to credit rating agencies contained material misstatements and omissions regarding BMW’s U.S. retail vehicle sales.https://www.sec.gov/news/press-release/2020-223
After having spent 43 years in the car business (many of which with BMW North America), I can unequivocally say these practices are routine and commonplace within car dealerships. Fraudulent behavior like this is not limited to BMW. Every manufacturer I have ever worked for encourages this.
When I worked for Penske Automotive Group we were explicitly instructed not to fudge any numbers. If our BMW rep asked us to “pad the numbers” one month, we didn’t. Penske didn’t want to participate in that type of activity. They were the exception to the rule.
As a dealer you have very little choice but to “play the game.” As I’ve talked about in other videos and guides here on the blog, car dealers don’t make much of anything when they sell vehicles. Instead, they make their money from factory incentives and from selling finance and insurance products.
With that in mind, it’s clear why dealers “play the game.” If you have a $250,000 incentive that is based on the number of cars you sell in any given month, and the person writing you that check (BMW) is encouraging you to “fake” sales so that you can actually attain the bonus, what would you do? The answer is simple.
Car manufacturers are happy to pay out giant monthly bonuses to subsidize their dealers, but only if they hit certain sales volume thresholds. This is because manufacturers are then able to report better than expected sales volumes to their investors.
How many fraudulently reported vehicles are “sold” in any given month? In any given month we would designate 15 Mini Coopers as “sold,” even though they hadn’t been. In that same month we may have actually sold 35 or 40 vehicles. Each month, upwards of 20% of our “sales” were fake.
It’s surprising to think that BMW was only fined $18M. Considering a nontrivial amount of their sold inventory is not actually sold, you would think the fine should be $180M instead of $18M.
Fiat Chrysler paid $40M in fines a few years ago for similar practices. Regardless of who it is, it’s clear that the fines aren’t enough to stop the fraudulent behavior.