VW owners to get buyback price plus at least $5,100 in U.S. deal

WASHINGTON -- Volkswagen’s decision to violate U.S. emissions rules on 2.0-liter diesel vehicles, a cornerstone of its vehicle lineup, will cost the company more than $15 billion under far-reaching settlements with car owners, the federal government and dozens of states.

Included in the settlements, announced by U.S. officials on Tuesday, is up to $10 billion for customer buybacks, early lease terminations and customer restitution payments, according to a summary filed in U.S. District Court in San Francisco, which is overseeing the VW litigation.

Under pressure from the EPA, the automaker admitted in September that it had rigged 2.0-liter diesels with software to mask harmful nitrogen oxide emissions during U.S. government lab tests since the 2009 model year, affecting some 500,000 vehicles here. The company later admitted that about 11 million vehicles worldwide had the illegal “defeat device” software, plunging it into an epic scandal that has tanked its stock price and put the company under siege from angry shareholders, regulators, customers and dealers.

Following what Deputy U.S. Attorney General Sally Yates called “one of the most flagrant violations of environmental and consumer laws in our country’s history,” each owner of an affected diesel will get the repurchase price of their vehicle plus $5,100-$10,000 depending on the model and year.

Owners eligible for compensation can also wait and see if VW comes up with a repair for the diesel engines, pending regulator approval. Owners choosing a fix will also receive the $5,100-$10,000 payout.

Total compensation for owners who choose the buyback ranges from a low of about $12,500 to a high of about $44,000, U.S. officials said. The amounts include the buyback values based on pre-scandal “clean” trade-in values according to the National Automobile Dealers Association and the lump sum payouts.

Lessees

Lessees who terminate their leases early will receive about half of what an eligible owner would receive for an equivalent vehicle. Owners with loans that exceed their vehicles’ value selecting a buyback may be eligible for loan forgiveness, as well.

In addition, VW will contribute $2.7 billion in a trust to fund environmental programs nationwide to reduce nitrogen oxide emissions. VW also is required to spend $2 billion to “promote” the market for battery-electric or hydrogen fuel cell vehicles, in addition to what the company has already earmarked for investment in alternative-fuel technologies, according to the summary.

Eligible projects under the clean car fund could include installing public charging stations or electric car education campaigns.

“Using the power of the Clean Air Act, we’re getting VW’s vehicles off the road and we’re reducing harmful pollution in our air ... that never should have been emitted in the first place,” EPA Administrator Gina McCarthy said.

VW also reached a separate settlement with at least 44 U.S. states, the District of Columbia and Puerto Rico that will cost at least $600 million.

The settlements come after months of intense negotiations overseen by former FBI Director Robert Mueller among Volkswagen, U.S. officials and attorneys representing owners of the affected VW diesels. Parts of the agreement were leaked to the media last week.

The deals today represent a partial settlement of the U.S. government’s diesel claims against VW. The company still faces potentially billions of dollars more in civil penalties from the EPA under the Clean Air Act, injunctive relief and the outcome of the Justice Department’s criminal probe into VW, a U.S. official said after the press conference.

If VW and the government fail to reach a settlement for civil penalties under the Clean Air Act, Judge Charles Breyer could order a penalty establishing monetary fines that take into consideration the economic benefit that VW gained by violating the law, according to a U.S. official.

Members of the public may comment on the proposed settlements after the documents are filed in federal court. A preliminary hearing to approve the consumer class-action settlement is scheduled for July 26. A consumer website has been established to handle the settlement at vwcourtsettlement.com.

After receiving final approval from the court, VW could begin the buyback and compensation program as early as this fall.

Terms

The $10.03 billion set aside for buybacks and cash payouts for owners represents the maximum VW will pay to owners of the 2.0-liter vehicles under the deal.

The terms require VW to buyback or otherwise repair at least 85 percent of the 475,000 affected 2.0-liter diesels by June 30, 2019. If VW fails to do so, the company must contribute an additional $85 million for each percentage point it falls short of the 85 percent threshold to the $2.7 environmental remediation trust, according to a U.S. official.

Handling of the buybacks by VW and dealers will be subject to special oversight by a court-approved claims supervisor. Consumers who are unhappy with the process can report problems to a claims review committee, according to the deal.

The Justice Department's partial consent decree sets new deadlines for VW to submit details on  proposals to repair vehicles on a rolling basis through October 2017. According to the agreement, VW is expected to propose fixes for 2015 model year diesels by July 29. Proposals for 2009-14 Jettas, 2010-14 Golfs, 2013-13 Beetles and 2010-13 Audi A3s models are expected by November 11.

The company's plans to fix 2012-14 model year Passats are expected by Dec. 11. VW will be permitted to resell the diesels it buys back, but only after completing emissions modifications approved by regulators.

Turning point

The settlements mark a key turning point in the prolonged saga following the disclosure of VW’s rigged diesel violations, freeing the automaker from nine months of near silence. Ongoing investigations by the EPA and Department of Justice and, more recently, a court-imposed gag order have barred VW from publicly discussing the matter in-depth.

The company has faced a withering assault from investors, vehicle owners, municipalities as well as regulatory and criminal investigators in the U.S. and in Germany.

Yet the settlements filed today don’t resolve all claims stemming from the emissions violations. VW still must reach an agreement with regulators on whether it will offer to buy back 85,000 larger 3.0-liter 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. A deal covering the 3.0-liter vehicles may still be months away.

Today’s settlements also do not include claims from investors, bondholders and individual consumers who have sued outside of the San Francisco federal court, and VW’s U.S. dealers.

VW’s U.S. dealers have seen the value of their stores sink amid a freeze on all new and certified diesel vehicle sales imposed shortly after the violations were made public in September. Customers are growing frustrated with the protracted blackout on information about what to do with their vehicles. VW’s U.S. sales were down 13 percent through May.

Dealer negotiations

A committee of six VW dealers was organized in March on behalf of VW’s 652 U.S. dealerships to attempt to recoup financial damage to dealerships caused by the emissions scandal.

VW agreed in May to begin the talks, but it’s unclear what has transpired since. Jason Kuhn, president of Kuhn Automotive Group of Tampa and chairman of the dealer negotiating committee, declined to discuss the talks, citing a confidentiality agreement.

The automaker planned to host a conference call with dealers later Tuesday to discuss the settlements and customer communication strategies, according to dealers planning to participate in the call.

Alan Brown, chairman of VW’s dealer council, said that the settlements represent the first signs of “closure” since the scandal broke last fall.

“You can’t begin to heal until you have closure,” he said. 

Criminal investigation

VW still may face criminal charges and oversight by an independent monitor, similar to settlements of cases involving General Motors and Toyota Motor Corp. for auto safety issues, a person briefed on the matter said.

“We are aggressively pursing the criminal investigation in this case, both of the companies involved and of the individuals,” Yates told reporters, noting that the probe was examining “multiple companies and multiple individuals.”

A criminal settlement, which could be reached in coming months, would also include specific measures to ensure that the company would not engage in further violations.

"We didn't follow a multiyear, grind-it-out litigation strategy, which would have been counterproductive for Volkswagen," said Robert Giuffra Jr., the company's lead lawyer. "We moved with lightning speed to settle with our federal and state regulators and the private plaintiffs."

‘Step Forward’

Volkswagen, in a statement, said it was pleased to reach the deals and begin moving forward to rebound from the crisis. 

“We take our commitment to make things right very seriously and believe these agreements are a significant step forward,” VW CEO Matthias Müeller said in the statement. 

“We appreciate the constructive engagement of all the parties, and are very grateful to our customers for their continued patience as the settlement approval process moves ahead. We know that we still have a great deal of work to do to earn back the trust of the American people. We are focused on resolving the outstanding issues and building a better company that can shape the future of integrated, sustainable mobility for our customers.”

As part of the settlement with the states, New York will receive more than $115 million for air-quality improvement projects, as well as about $30 million for the state’s coffers, according to the New York Attorney General Eric Schneiderman, who led the investigation by the states. New York will also continue a investigation into the scope of VW’s environmental liability.

Leaders of the multi-state probe also included Massachusetts, Connecticut, Oregon, Tennessee and Washington.

“These partial settlements announced today exact a stiff price from Volkswagen for its deception of consumers and the environmental damage it has caused in New York and across the country,” Schneiderman said in a written statement.

Schneiderman said that VW’s liability with the states could increase substantially.

Bloomberg and Reuters contributed to this report.