Hawaii’s sole Volvo dealership is claiming in a lawsuit that its distributor coerced it to fake new-vehicle purchases and participate in investor fraud so that the Swiss automaker could inflate quarterly and annual sales figures.
The distributor refuted all the claims in the suit, said Dean Shaw, vice president of corporate communications for New Jersey-based distributor Volvo Car USA, in a telephone interview Monday.
Envy Hawaii LLC, which does business as Volvo Cars Honolulu, filed a complaint late Friday in U.S. District Court in Honolulu, saying Volvo Car USA told the Honolulu dealership to report dealer deliveries as new-car sales if sales quotas were not met and to reclassify them as service loaners or demonstration vehicles. The practice is known as “punching” in the industry.
“The punching scheme prematurely commences consumer warranty periods, misleads the public and investors by creating the appearance of continued growth, and forces dealers to accept inventory well beyond actual sales demand,” according to the suit, which is seeking damages and attorney fees via a jury trial.
Shaw said Volvo Cars Honolulu’s lawsuit appears to be retaliatory.
“We filed one against them in December, so I imagine this is a comeback against us,” Shaw said, referring to a complaint filed Dec. 23 in U.S. District Court’s Central District of California Southern Division.
The latest lawsuit represents the second incident this month involving the local Volvo dealership and its distributor.
Volvo Cars Honolulu, at 704 Ala Moana Blvd., suspended sales for about two weeks after Volvo Car USA was informed in a letter Dec. 29 by the state Motor Vehicle Industry Licensing Board that it had submitted incomplete paperwork in connection with its annual license renewal application and could not distribute vehicles in Hawaii.
Volvo Cars Honolulu, which didn’t find out about the letter until Jan. 5, halted sales at that time and didn’t resume sales again until Jan. 20, when it was notified that the necessary paperwork had been submitted and approved. In the meantime Volvo Cars Honolulu suffered losses that it is still calculating.
Volvo Car USA, in its California lawsuit against Volvo Cars Honolulu, accused the local dealership of altering the standard dealer agreement and demanding that Volvo Car USA pay the transportation charges for shipping vehicles to Hawaii. Volvo Car USA said the customary practice in the industry is that all dealers are responsible for the cost of transporting vehicles to their dealerships. Volvo Car USA also contends that Volvo Cars
Honolulu changed the wording in the contract so that the local dealership would not be responsible for storage and other expenses after receiving vehicle shipments.
Volvo Cars Honolulu, which purchased the rights to the Volvo franchise from Jackson Auto Group in late 2012, said that since 2013 the punching scheme has bloated Volvo Cars Honolulu’s inventory by forcing inventory upon Volvo Cars Honolulu irrespective of actual demand and caused a substantial increase in overhead and other expenses that are borne solely by Volvo Cars Honolulu.
“The punching scheme has further harmed Volvo Cars Honolulu because (Volvo Car USA) has imposed increasingly unrealistic and unreasonable sales goals on Volvo Cars Honolulu, goals that are based on (Volvo Car USA’s) own inflated sales data,” the suit said.
Volvo Car USA said in its suit that a Volvo dealer can earn incentives by using a new vehicle as a demonstration vehicle or a service loaner but that it never required or coerced Volvo Cars Honolulu to “punch” cars. Volvo Car USA said its incentive programs are voluntary and that Volvo Cars Honolulu made its own decisions to transfer vehicles into demo or loaner status so that it could receive the incentives offered by the distributor.
Parent company Volvo Car Corp., which is 100 percent owned by Chinese carmaker Zhejiang Geely Holding Group Co., raised $532 million last month from the sale of newly issued “preference shares” to three Swedish institutional investors and has been the subject of industry talk that it could file for an initial public offering.
John Martinho, vice president and general manager of Volvo Cars Honolulu, speculated that the automaker may be trying to boost its sales figures ahead of a possible IPO.
“That’s one of our speculations (behind the punching scheme) because there’s a little bit of hype about the IPO, but Volvo has gone on record that it doesn’t have any immediate plans,” Martinho said.