Dieselgate Deal

Volkswagen's €17-Billion Scandal

VW volkswagen logo American flag USA car dealership in San Diego source Reuters 49484510
VW is close to a legal settlement in the United States, a court judge said Tuesday.
  • Why it matters

    Why it matters

    A deal with U.S. authorities on a repair plan is crucial for Europe’s carmaker to resolve Dieselgate, put a price tag on the scandal and start winning back the trust of its customers.

  • Facts

    Facts

    • Volkswagen faced a U.S. deadline on Thursday to present a solution how to repair nearly 600,000 manipulated diesel cars in the United States.
    • Volkswagen admitted last September it had manipulated around 11 million diesel cars worldwide, making them emit lower amounts of toxic gases in testing.
    • The carmaker will set aside a total of €17 billion in its 2015 annual figures, sources said, below estimates that went as high as €30 billion.
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    Audio

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Facing a key deadline, Volkswagen has reached a deal over its diesel emissions scandal with U.S. authorities, which could enable the carmaker to avoid a court case in the summer and clarify how much the scandal will cost the German carmaker.

As a result of the settlement, VW will set aside an additional €10 billion, or $11.3 billion, to deal with the aftermath of the Dieselgate scandal, Handelsblatt has learned. That brings the total amount set aside by VW in its 2015 balance sheet to €17 billion – well below the nearly €30 billion that some analysts had expected.

The carmaker’s supervisory board is expected to sign off on the 2015 annual results at a meeting on Friday, sources said. VW would not comment to Handelsblatt.

Volkswagen earlier Thursday presented to a U.S. judge the outlines of a deal it has reached with authorities in the United States over the diesel scandal that has rocked the German carmaker since last September. The goal for the carmaker was to clear up the charges it would still have to book in 2015 – sources say this goal was achieved.

The framework of a deal was presented in California to U.S. Judge Charles Breyer, who had set a deadline of 17:00 German time Thursday for a settlement to be reached between VW, the U.S. Environmental Protection Agency and other U.S. agencies. Judge Breyer has now extended the deadline until June 21 for the two sides to hammer out the details.

Only once the details are agreed will the settlement between VW and the U.S. authorities be made public.

Sources have said the settlement includes an option for owners of VW diesel cars in the United States to sell their cars back to the German carmaker, or have the cars refitted instead. There would also be a “substantial” payment of damagers – media reports have put the average payment at about $5,000 dollars.

VW lawyer Robert Guiffra told the court that the deal was “good for customers, good for the environment and good for VW.”

VW lawyer Robert Guiffra told the court that the deal was “good for customers, good for the environment and good for VW.”

U.S. owners of affected diesel cars might receive $5,000, according to German newspaper Die Welt. VW would also offer to buy back almost 500,000 affected diesel cars in the United States as part of a deal, Reuters reported, citing people familiar with the matter.

Europe’s largest carmaker faced a Californian court deadline Thursday to submit details about how it would repair the affected diesel cars in the United States, where air pollution regulations are stricter than in Europe.

VW has already submitted plans for how to repair around 8.5 million vehicles in Europe to regulators in the region.

Volkswagen, which declined to comment on all media reports, admitted last September that it had manipulated 11 million diesel cars worldwide, including around 585,000 vehicles in the United States. The cars emit more toxic nitrogen oxide gases than U.S. laws allow.

As details of an agreement emerged on Wednesday, Volkswagen preference shares rose more than 6 percent. The preference stock continued its climb on Thursday morning, jumping 5.5 percent to €127.60, the highest level in almost four months. The preference shares are still down 21 percent from their cost when the scandal emerged in mid-September 2015.

“The market is betting on a favorable solution,” said Sascha Gommel, chief auto analyst at Commerzbank in Frankfurt.

The carmaker, Europe’s largest, has been in crisis since it admitted seven months ago it manipulated diesel engines at its car brands VW, Audi, Porsche, Skoda and Seat. A deal in the United States will help put a price tag on the scandal and the scale of the impact on the company’s earnings in 2015.

VW’s supervisory board will convene on Friday at the company’s headquarters in Wolfsburg to discuss annual figures and an internal investigation being carried out by U.S. law firm Jones Day. Chief executive Matthias Müller and other supervisory board members are expected to give details of the meeting afterwards. VW will officially present annual figures next week.

Analysts had feared even worse damage: The total costs of the Dieselgate scandal could be between €20 billion and €30 billion, analyst Frank Schwope of regional bank NordLB said last month.

The deal with the U.S. Environmental Protection Agency and the California Air Resources Board, which exposed the diesel-rigging scandal last September, has not been determined in detail, but important points have been agreed upon, people familiar with the negotiations told Handelsblatt.

It remains unclear whether the environmental agencies have agreed to VW’s proposed repairs of manipulated diesel cars. EPA and CARB have repeatedly rejected recall plans in the past few months.

 

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Customer compensation of $5,000, as reported by Die Welt, was a ballpark figure, people familiar with the matter told Handelsblatt. The actual sum that VW customers could receive would sometimes be lower, sometimes higher, the sources said.

Analyst Mr. Gommel fears that U.S. compensation might set a precedent for customers in Europe. “(Lawyer Michael) Hausfeld is suing here. If U.S. customers receive $5,000, they might be entitled to €4,500 in Europe. Then we’re talking about different figures,” Mr. Gommel told Handelsblatt Global Edition.

Mr. Hausfeld, a prominent U.S. litigator, wants VW to compensate European customers for the damage caused by the emissions scandal in the same way it is paying out U.S. claims. With 8.5 million affected cars in Europe, the level of compensation could be far larger. VW has agreed to set up a compensation fund in excess of $1 billion in the United States.

VW also plans to commit itself to measures to improve air quality, people familiar with the negotiations told Handelsblatt. This would serve as compensation for emitting more nitrogen oxide gases than allowed.

Volkswagen might not pay a dividend to shareholders on its 2015 results and if it did, it would be less than €1 per share, one person told Reuters. The company paid out €4.80 per common share and €4.86 per preference share on 2014 results.

 

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Astrid Dörner is a Handelsblatt correspondent in New York. Martin Murphy and Markus Fasse are Handelsblatt editors covering the auto industry. Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. Christian Schnell also contributed to this story. To contact the authors: adoerner@handelsblatt.com, murphy@handelsblatt.com, fasse@handelsblatt.com and kreijger@handelsblatt.com

This story was updated with additional details on the settlement at 20:30 Central European Time.

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