Volvo China recently uncovered a network of dealers who were actively reporting higher than reality sales to the Volvo China Headquarters in a bid to gain cash rebates from the Swedish brand according to a Reuters report issued on Friday:
Swedish auto maker Volvo has uncovered widespread cheating by its car dealers in China, where retailers inflated sales to win cash rebates from the company for hitting volume targets.
An investigation by the struggling, Chinese-owned car maker uncovered thousands of fake sales booked in 2011 — but also an under-reporting of sales in 2012 to make the books balance. That meant it actually performed better last year than it had thought, according to a senior Volvo executive.
The executive asked for anonymity because of the sensitivity surrounding the findings of the recent investigation.
Volvo Car Corp., wholly owned by China’s Zhejiang Geely Holding Group Co. GEELY.UL since 2010, had reported an 11-percent slide in 2012 sales in China, fuelling doubts over its ambitious strategy for the key growth market.
In fact, sales rose — by 15 percent from a year earlier — after it uncovered what the senior Volvo executive described as “widespread falsifying” of retail sales volume by a number of its Chinese dealers. He said his best estimate was “half of the dealers” were involved in falsifying retail sales volume.
A Volvo spokesman acknowledged the company had discovered a “transparency issue” with the reporting of sales, but said it would not hurt earnings.
Volvo told dealers in its network of 151 retail sales outlets in China earlier this month that it had begun cracking down on the sales-inflating practices. The message was delivered at a meeting in Taipei on March 7 as part of an internal presentation on the state of its business. Reuters has viewed the presentation slides Volvo used in the Taipei meeting.
“We believe we fixed the problem, but it was a painful process,” the senior Volvo executive told Reuters.
He said the over-reporting of sales by dealers made it hard for Volvo to assess the popularity of models and made the automaker less responsive to swings in demand for its cars — in some cases forcing the company to over-deliver to showrooms.
However, there was little material impact on Volvo’s bottom line, he said, since the company books sales when it ships cars to dealers, not when consumers buy the vehicles at dealerships.