Hyundai Motor dealers sue automaker over alleged sales inflation scheme
Hyundai Motor dealers sue automaker over alleged sales inflation scheme
A group of Hyundai Motor dealers has filed a lawsuit against the South Korean automaker in a Chicago federal court, alleging that Hyundai Motor America Corp (HMA) inflated electric vehicle sales figures and penalised dealers who refused to participate in the scheme. The lawsuit, brought by Napleton Aurora Imports in Illinois and its affiliated franchises, claims that Hyundai pressured dealers to misuse inventory codes intended for "loaner" vehicles to falsely boost sales numbers.
Allegations of reward and punishment
According to the lawsuit, dealers who complied with Hyundai's alleged scheme were rewarded with wholesale and retail price discounts, as well as other incentives. In contrast, those who resisted faced punitive measures. The dealers assert that this manipulation skewed the distribution of desirable inventory, giving an unfair advantage to compliant dealers and misleading both the public and investors about the true demand for Hyundai's electric vehicles.
"Dealers that played ball would receive extra inventory of faster-selling Hyundai models," the lawsuit states, suggesting that this practice deprived customers of choice and allowed Hyundai to present an overly optimistic picture of its sales performance.
Hyundai's response and counter-litigation
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Hyundai responded to the allegations with a statement on Monday, asserting that it does not condone the falsification of sales data and has launched an internal investigation into the matter. The company also highlighted its ongoing litigation efforts in South Florida to terminate two Napleton-affiliated franchises linked to a criminal sexual battery allegation.
"We are committed to maintaining the integrity of our sales reporting and are taking these allegations seriously," Hyundai said in its statement.
Legal basis and historical context
The lawsuit accuses Hyundai of fraud and violating the Robinson-Patman Act, a federal antitrust law that prohibits price discrimination. The dealers claim that Hyundai's scheme was designed to inflate sales volumes artificially, leading the public to believe that the surge in electric vehicle sales was driven by genuine market demand.
"Instead of organic growth fueled by desirable vehicles and consumer demand, HMA created a multitiered scheme to cause its dealers to report false sales," the complaint alleges. It cites a phone call from a Hyundai district sales manager who reportedly said, "We gotta hit a number for the press and for the Koreans."
The dealers are seeking unspecified damages to cover lost sales, revenue, and profits, arguing that they have been unfairly denied benefits from Hyundai.
Similar cases in the automotive industry
This isn't the first time Napleton has been involved in litigation over alleged sales inflation. In 2016, the dealership group sued Chrysler, accusing it of similar practices. Although Chrysler denied the claims, the case was settled in 2019 under confidential terms. Additionally, Chrysler agreed to pay $40 million to the U.S. Securities and Exchange Commission in a related action to resolve claims that it misled investors with inflated monthly sales figures.
The lawsuit and legal representation
The case, Napleton Aurora Imports Inc et al v. Hyundai Motor America Corp, is being heard in the U.S. District Court for the Northern District of Illinois, under case number 1:24-cv-05668. Napleton is represented by Russell McRory and Mir Ali of ArentFox Schiff, while Hyundai has yet to make an appearance.
The broader implications
The allegations against Hyundai raise significant questions about the integrity of sales reporting practices in the automotive industry. If proven true, these practices not only mislead consumers and investors but also distort market competition by favouring certain dealers over others. The case highlights the need for transparency and accountability in sales reporting to ensure a fair and competitive market landscape.
As the lawsuit unfolds, it will be crucial to monitor how Hyundai addresses these serious allegations and what measures the company will implement to restore trust among its dealers and customers. The outcome of this case could have far-reaching implications for the automotive industry's sales practices and regulatory oversight.
(Inputs from Reuters)