AFP, Reuters/San Francisco
Volkswagen has agreed to pay out $14.7bn in a settlement with US authorities and car owners over its emissions-cheating diesel-powered cars, court documents showed yesterday.
The settlement filed in federal court calls for the German auto giant to either buy back or fix the cars that tricked pollution tests, and to pay each owner up to $10,000 in cash.
Under the agreement, Volkswagen has agreed to create a pool of $10bn to compensate owners and a $2.7bn environmental penalty.
The company will invest an additional $2.0bn “to create infrastructure for and promote public awareness of zero emission vehicles,” the court filing showed.
The huge settlement, which must be approved by a federal judge in San Francisco who is overseeing the litigation, could affect some 480,000 owners of Volkswagens and Audis with 2.0-litre diesel engines.
Volkswagen admitted in September that it had installed software in the vehicles that tricked US emissions tests into showing the cars met environmental standards.
The device switched off after testing, enabling the vehicles to spew up to 40 times the permitted amounts of nitrogen oxides.
Volkswagen has set aside €16.2bn ($17.9bn) to cover costs from the scandal including the legal risks.
A settlement would not end Volkswagen’s troubles in the United States, however.
VW also faces fines from US regulators potentially running to the tens of billions of dollars, and a criminal investigation over the scandal.
It must address similar charges over its 3.0 litre diesel cars with emissions-cheating devices.
The auto giant is facing similar charges and litigation in Europe and elsewhere for the same issues.
Yesterday’s settlement filed with Judge Charles Breyer would settle claims from the US government as well as a large number of plaintiffs including owners, lessees, and dealers.
Volkswagen agreed under the deal to buy back the emissions-cheating vehicles at their market prices before the scandal broke, at prices ranging from $12,475 for the Jetta Sedan to more than $44,000 for some Audi models.
The owners also have the option of letting Volkswagen modify the cars to meet US pollution standards.
In either case, the owners would also get a cash settlement ranging from $5,100 to $10,000 depending on the vehicle.
Though about $5bn higher than previously reported, the settlement gives firm details of costs in the United States where VW faces the bulk of expenses for its wrongdoing, more than nine months after the scandal broke.
“The deal looks reasonable and it will end uncertainty,” said London-based Evercore ISI analyst Arndt Ellinghorst who has a “buy” rating on VW stock.”We expect the market to be OK with the higher number.”
VW shares jumped as much as 4.7% on the news and were trading up 2.9% at €109.2 by 1002 GMT.
But criminal and civil legal action is still pending in other countries, while European governments are demanding VW offer similar compensation to the owners of 8.5mn rigged cars in the region, adding to risks that the costs could climb.
Speaking on condition of anonymity, due to court-imposed gag rules, the first sources said owners of 2.0 litre diesel VW 2009-2015 cars would receive at least $5,100 compensation along with the estimated value of the vehicles as of September 2015, before the scandal erupted.
Some owners will get as much as $10,000 in compensation, the first sources said, depending on the value of the car. The $10.033bn is the maximum VW could pay if it had to buy back all vehicles, but the actual amount VW will pay could be much less if a large number of owners don’t take buybacks.
Prior owners will get half of current owners, while people who leased cars will also get compensation, said the first sources.
Owners would also receive the same compensation if they choose to have the vehicles repaired, assuming US regulators approve a fix at a later date.
The settlement includes $2.7bn in funds to offset excess diesel emissions and $2bn in VW investments in green energy and zero emission vehicles, the first sources said.
The diesel offset fund could rise if VW has not fixed or bought back 85% of the vehicles by mid-2019, the first sources said.
The $2bn in green energy and zero emission efforts will be spent over 10 years, the first sources said, and will include zero emission vehicle infrastructure.
VW still must reach agreement with regulators on whether it will offer to buy back 85,000 larger 3.0 litre Porsche, Audi and VW cars and SUVs that emitted up to nine times legally allowable pollution and how much it may face in civil fines for admitting to violating the Clean Air Act.
Erik Gordon, a University of Michigan business professor, said: “VW had little negotiating power, given the evidence. The costs of the remedies should make automakers cautious about misleading people in ways that give prosecutors the ability to bring criminal charges.
Potential criminal charges mean you open your wallet in the civil actions, hoping to receive leniency instead of jail time.”
Reuters reported earlier the initial VW settlement would not include civil penalties under the US Clean Air Act or address about 85,000 larger 3.0 litre Audi, Porsche and VW vehicles that emitted less pollution than 2.0 litre vehicles.
A deal covering the 3.0 litre vehicles may still be months away.
The settlement does not address lawsuits from investors or a criminal investigation by the Justice Department.
Regulators will not immediately approve fixes for the 2.0 litre vehicles — and may not approve fixes for all three generations of the polluting 2009-2015 vehicles, sources previously told Reuters.
Owners will have until December 2018 to decide whether to sell back vehicles and fixes may not eliminate all excess emissions.
VW cannot resell or export the vehicles bought back unless the EPA approves a fix, Reuters reported last week.
VW, the world’s second largest automaker, has seen US VW brand sales suffer in the wake of the crisis.
VW brand sales are down 13% in the United States in 2016, while sales of its luxury Audi and Porsche units have risen.
US District Judge Charles Breyer in San Francisco will hold a hearing on July 26 to decide on whether to grant preliminary approval to the settlements. If granted he would hold a later hearing to give final approval.
Buybacks are likely to start no earlier than October, the first sources said.
VW had said the scandal impacted 11mn vehicles worldwide and led to the departure of CEO Martin Winterkorn.
German prosecutors said this month they were investigating Winterkorn and a second unidentified executive over whether they effectively manipulated markets by delaying the release of information about the firm’s emissions test cheating.
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