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FCAU keeps plunging after lawsuit

by David Zatz on

A single dealership group, Napleton, filed a civil racketeering suit against FCA US, claiming that the company was bribing dealers to claim fake sales and then back them out of the system days later. Comments at Allpar and Automotive News, which first filed the story, indicate that the dealerships are not FCA’s most reputable, tend to underperform, and that FCA tried to close one of the dealerships (Ed Napleton Dodge of Westmont, Illinois) in 2009.

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The result, though, was devastating. While the stock market as a whole fell, FCA had been gaining on the launch of the 2017 Chrysler Pacifica. The lawsuit overshadowed the new minivans, and the stock of both FCA (FCAU) and Ferrari (RACE) have been falling ever since. FCAU is now at $7.34 per share, and RACE is at $40.02 (the Ferrari stock may be falling for other reasons; it has lost well over 10% of its value since FCAU owners were given shares.)

FCAU had risen up to $11.24 per share earlier this year. It reached $8.19 on Tuesday, following the new vans, in a falling market; and has since slid every day.

FCA reacted fairly slowly, giving Automotive News a “no comment” while it launched an internal investigation. After the story went public, it took around a day for FCA’s reaction — categorically denying the claims, citing an internal investigation — to be posted.

Marchionne-FCAU-Web

Automotive News’ Larry Vellequette asked analysts about the drop in the stocks.  He reported that analysts are more concerned about whether FCA can reach its ambitious sales targets for the 2018 plan, and that the suit probably did not indicate any lawbreaking. FCA carries a worrying amount of passenger-car inventory, and the Alfa Romeo gamble is seen as risky. The company has increased year-over-year sales in the US every month for 69 months, but calling the legitimacy of that record into question may have been the final straw.

The “scandal” may also be totally unrelated to FCAU’s drop; stocks in general have been falling rapidly as oil reaches dangerously low prices and China’s internal troubles panic the markets. As investors go to safe havens, FCA and RACE may simply be too risky for some.

David Zatz founded Allpar in 1998 (based on a site he had begun in 1993-94), after years of writing reviews for retail trades. He has been quoted by the New York Times, the Daily Telegraph, the Detroit News, and USA Today. Before making Allpar a full-time career, he was a consultant in organizational psychology. You can reach him by using our contact form (much preferred) or by calling (313) 766-2304


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