EMISSIONS Settlement

VW Agrees $15.3-Billion U.S. Settlement

VW Volkswagen CEO Matthias Mueller Detroit Auto Show Jan 2016 source Uli Deck dpa 62237344
With the U.S. settlement, VW's chief executive Matthias Müller can close one of the carmaker's Dieselgate chapters.
  • Why it matters

    Why it matters

    Volkswagen’s proposed $15.3 billion settlement with U.S. customers would reduce the automaker’s exposure to some aspects of the global Dieselgate scandal, but criminal and other probes are pending, and total costs are likely to rise.

  • Facts

    Facts

    • Volkswagen has reached a settlement with U.S. authorities and diesel owners nearly $15 billion.
    • Owners of VW and Audi vehicles with EA 189 two-liter diesel engines will receive up to $10 billion — up to $10,000 per owner — to have vehicles repaired or returned to VW.
    • Volkswagen will also pay a total of $4.7 billion into a clean emissions fund and to invest in clean engine technology.
  • Audio

    Audio

  • Pdf

After months of negotiations, Volkswagen’s day of reckoning in the United States has come. The German automaker has agreed to pay up to $15.3 billion (€13.8 billion) to compensate buyers of its affected diesel cars in the United States, including paying penalties to regulators and investing in clean engine technology.

The German automaker acknowledged the pact with the U.S. Environmental Protection Agency and 475,000 U.S. diesel car buyers on Tuesday. In a statement, the company said it filed the settlement in a U.S. District Court in San Francisco, which still has to give its approval to make the deal binding.

The agreement includes $10 billion in payments to U.S. citizens who own 2.0-liter VW or Audi diesel cars, VW said. Each car owner could receive payments of up to $10,000, news agency Reuters reported.

“ VW appears to be betting that European customers have fewer rights than Americans.”

Eric Breiteneder, Lawyer, Volkswagen Car Compact

The carmaker said it has also agreed to pay $2.7 billion into an environmental cleanup fund, as well as to invest another $2 billion into clean engine technology. Furthermore, it agreed to pay $603 million as part of a settlement with the attorneys general of 44 U.S. states, the District of Columbia and Puerto Rico to resolve existing and potential state consumer protection claims over Dieselgate.

Investigations by the federal EPA and the California Air Resources Board, a state regulator, prodded Volkswagen last September to admit that it had installed cheating software on up to 11 million diesel cars worldwide to disguise high levels of nitrogen oxide gas pollution, a toxic substance that contributes to smog.

Reaching a settlement in the United States will bring Volkswagen closer to putting its so-called Dieselgate crisis behind it. The Wolfsburg-based company, one of Germany’s largest private sector employers, has seen its market value plummet and its brand tarnished by the revelations, which have also cast a bad light on Germany’s auto industry.

Even with the settlement, Volkswagen still faces criminal investigations in Germany, South Korea and the United States, as well as a probe by the New York state financial services regulator into whether the German automaker overcharged consumers when it financed the sale of supposedly clean-emitting diesel cars.

Volkswagen’s preference shares were up 3.3 percent at €109.55 by 4:16 p.m. in Frankfurt, compared with a 2.6-percent rise of the German blue-chip DAX Index. The automaker’s stock is still down 32 percent below the level before the Dieselgate scandal went public last September.

Volkswagen is hoping the settlement will help stem its legal risk in the United States from a rising tide of class-action lawsuits brought by diesel owners. The automaker has set aside €16.2 billion to cover the costs associated with the emissions scandal and said the settlement was “within the scope of our provisions.”

But Frank Schwope, an analyst at Nord LB bank in Hanover, said the €16 billion set aside is the minimum Volkswagen will pay once everything is settled.

“Worldwide, we’re still expecting about €20 billion to €30 billion,” Mr. Schwope told Handelsblatt. It will take a decade to reach a definitive figure, he said, but Volkswagen will probably pay more rather than less.

 

22 p34 VW's Profit Margin Takes a Hit-01 Volkswagen

 

The German automaker also has legal problems in Europe. A Dutch group called Volkswagen Car Compact is representing more than 100,000 Volkswagen diesel owners from across Europe who want legal damages. European law does not permit the kind of class-action suits common in the United States.

The German automaker agreed last December to enter into talks with the European owners’ group, but car owners say the company has not been cooperative.

“VW is currently blocking talks with European customers,” said Eric Breiteneder, a lawyer representing Volkswagen Car Compact. “VW appears to be betting that European customers have fewer rights than Americans.”

Mr. Breiteneder called for lump-sum payments to European diesel owners affected by the scandal. The settlement reached with U.S. customers should serve as the basis for negotiations in Europe, he said.

“There are differences in every E.U. country, but the damage to car owners is in principle the same,” Mr. Breiteneder said.

Christopher Rother, attorney with the law firm Hausfeld in Berlin, said that Volkswagen is obligated to offer European customers compensation for damages just like customers in the United States.

“German and European customers, completely independent of the legal foundation, cannot be treated differently than customers in the USA,” said Mr. Rother. Hausfeld’s U.S. offices participated in the settlement negotiations in the United States.

The legal foundation for a European settlement is clear, Mr. Rother said, experts simply need to determine the extent of the damages. “There’s more coming Volkswagen’s way,” he added.

 

22 p34 VW's Long Term Earnings-01 Volkswagen

 

Though Volkswagen has enough cash set aside to cover the settlement in the United States, offering a similar deal to the millions of affected diesel owners in Europe may jeopardize the automaker’s viability.

“It would certainly be tight,” VW Chief Executive Matthias Müller acknowledged to Handelsblatt in an interview last week.

Last September, Volkswagen admitted to U.S. authorities that it had installed software in some diesel model vehicles to cheat emissions tests. Regulators found some VW vehicles emitting 40 times the legal limit for nitrogen oxide in the United States.

Volkswagen subsequently admitted that 11 million diesel vehicles were affected worldwide, including 8.5 million in Europe.

The automaker reached a tentative agreement with U.S. authorities and diesel owners in April. Reports initially put the settlement much lower at $10 billion.

Judge Charles Breyer of the U.S. District Court in San Francisco gave the automaker until Tuesday to file a settlement.

The judge has the authority to approve or veto the settlement and plans to make an initial decision by the end of July. If he gives the green light, a period for public comments and remarks will follow. A final decision by Judge Breyer is expected in October.

Even if he approves the settlement, the owners of Volkswagen two-liter diesels may still sue the automaker if they believe they can get a better deal.

And it’s unclear whether or not Volkswagen will also have to compensate some 85,000 owners of three-liter diesel engines in the United States. So far, the automaker has denied allegations it installed cheat software in the VW Touareg, the Audi Q7 and the Porsche Cayenne.

The settlement doesn’t cover the U.S. Justice Department’s ongoing criminal probe, which could bring additional penalties, or separate lawsuits filed by U.S. states.

Volkswagen also faces a host of lawsuits filed by its shareholders. The biggest suit was filed in Germany by 278 investors from around the world. They are seeking $3.6 billion in damages.

 

Stefan Menzel is the managing editor of Handelsblatt’s website and closely follows the car industry. Astrid Dörner is part of Handelsblatt’s team of correspondents covering finance and U.S. corporations in New York. Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. To contact the authors: menzel@handelsblatt.com, adoerner@handelsblatt.com and votsmeier@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!