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Italian-American carmaker Fiat Chrysler Automobiles (FCA) is denying allegations that it encouraged dealers to inflate monthly sales.

The car company is being sued by a US dealer who says it encouraged dealerships to lie about monthly car sales.

FCA said it had not yet been served with the lawsuit, but that the "claim is without merit".

FCA's stock price fell 5% in New York and 7% in Milan on Thursday.

The dealer, Napleton Automotive Group, accused FCA of racketeering and fraud.

The lawsuit claims an FCA official offered the president of Napleton $20,000 (£13,881) in exchange for falsely reporting the sales of 40 new vehicles.

The suit also alleges FCA sales were reported at the end of the month and then backed out of the next day in order to avoid starting the warranty timetable.

Napleton said FCA's practices harmed its dealerships in Illinois and Florida.

On 5 January, FCA reported 2.2 million cars were sold in 2015 - a 7% increase in sales from 2014, that the company said was driven by demand for Chrysler Jeeps.

The lawsuit said: "FCA has every reason to continue to be opaque about this issue as it would not be helpful for the truth to come to light at the same time as FCA may be pursuing mergers and other business opportunities."

FCA's chief executive Sergio Marchionne said last year he supported consolidation in the car industry. He has encouraged General Motors to consider a merger with Fiat Chrysler.