Man smokes in front of a Volvo dealer shop in Beijing

Auto maker Volvo has found that its car dealers in China misstated sales records to achieve volume targets and to gain cash rebates from the company, Reuters reports citing a senior Volvo executive.

The struggling Swedish company wholly owned by China's Zhejiang Geely Holding Group found in an investigation that dealers booked thousands of fake sales in 2011 as well as understated the actual sales in 2012 to make the books in balance.

While the company had earlier reported an 11 percent decline in 2012 sales in China, its key growth market, the latest development indicates that its performance was actually better.

Auto sales in 2012 was in fact up 15 percent year-on-year, according to the executive, who estimates that "half of the dealers" were involved in falsifying retail sales volume.

He said that about 7,000 of Volvo's reported retail sales of 47,140 cars in 2011 were fake, meaning Volvo dealers in 2011 collectively sold only 39,871 cars in China. At the same time, actual sales in 2012 were 45,896 cars, but the dealers understated the records to 41,989 car sales.

Though the discovery of "transparency issue" in reporting sales was admitted by a Volvo spokesman, he maintained that the mismatch would not impact the company's earnings.

At a meeting in Taipei on 7 March, Volvo told dealers that it had started cracking down on the sales-inflating practices earlier this month in its China network of 151 retail sales outlets.

"We believe we fixed the problem, but it was a painful process," said a senior Volvo executive.

He added that the over-reporting of sales by dealers made it difficult for the company to gauge the popularity of models and to understand the variation in demand for its cars, resulting in over-delivery of vehicles to showrooms at times.

The executive noted that Volvo's earnings were unaffected due to the issue, because the company books sales only when it ships cars to dealers and not when dealers sell vehicles to customers.

Zhejiang Geely Holding acquired Volvo in 2010.