VW has agreed to pay billions to diesel owners. Did retailers miss out?

WASHINGTON -- The hundreds of frustrated Volkswagen dealers who turned up at the National Automobile Dealers Association convention in March in Las Vegas faced a difficult decision.

Charge ahead with a class-action lawsuit against the automaker for damages related to the diesel emissions scandal, or roll the dice on an out-of-court deal.

At the last minute, retailers decided to go for a settlement -- wishing to avoid a contentious court battle that would further damage a franchise already under siege. But that choice may prove to be a costly miscalculation.

Last week, VW agreed to pay out piles of cash to diesel owners and government agencies as part of a record $15 billion in settlements of class-action claims. VW dealers -- faced with plunging sales and decreasing franchise values -- received nothing.

"I hate to say "I told you so,' but I think they realize the train may have left the station," said dealer lawyer Leonard Bellavia of Bellavia Blatt & Crossett in Mineola, N.Y.

He said retailers "would've done better and gotten a faster result if they had taken the advice of dealer counsel to file a class action while the pressure was on. It would've been a lot easier to get a lot more money at an earlier stage."

Retailers were reluctant to "jump into the attack on VW," said dealer lawyer Aaron Jacoby of Arent Fox in Los Angeles.

"The dealers missed the boat on this one, but with intent," Jacoby wrote in an email. "None of the prominent dealers wanted to lead on a class action. I think it felt too distasteful to most of them."

Now the hopes of VW's 652 U.S. dealers rest with a six-man committee negotiating a deal with the manufacturer.

Volkswagen dealers are struggling. The brand's sales were down 15 percent through June amid a freeze on new diesel sales and the value of VW franchises has taken a hit in the last nine months. But the stakes are high for the factory, too. Disappointing the dealers risks undermining the support VW needs to fulfill its obligation to buy back or fix 475,000 2.0-liter diesels under its consent decree with the authorities.

Still, if the talks fail to satisfy dealers, the decision to forgo litigation could go down as a strategic blunder.

Ahead of VW's make meeting in March, Bellavia said he had a class-action complaint ready to file on behalf of multiple clients pending the outcome of the meeting. On the eve of the meeting, a self-appointed group of five VW dealers told fellow retailers they planned to engage VW in talks aimed at an out-of-court settlement.

Dealer council chairman Alan Brown, who later became the sixth member of the committee, said retailers opted out of the class action to "put customers first" in the settlement process.

VW met with the dealer committee at the company's U.S. headquarters in Herndon, Va., on June 6. VW executives said in a June 28 letter to dealers that while no agreement has been reached, "we have made substantial progress toward addressing your concerns as Volkswagen dealers."

Jason Kuhn, chairman of the committee and president of Kuhn Automotive Group of Tampa, Fla., declined to comment on the talks. VW also declined to comment.

Fred Emich, general manager of Emich Volkswagen in Denver, said he hopes the committee "provides some income for us. This year has cost me a lot of money."

Emich called last week's $15 billion settlements "astounding" in size. Given how quickly the settlements came together, he said, a class action, in hindsight, might have been a feasible option for dealers. But he said suing the factory is fraught with risk.

Steve Kalafer, a VW dealer and owner of the 17-franchise Flemington Car & Truck Country in Flemington, N.J., is skeptical the committee will wrest sufficient concessions from VW to repair the damage done to dealers in the past nine months.

"I predict that the record will show that the consumers will have received equity and the dealers will have received none," Kalafer said.

Bellavia said not taking a seat at the negotiating table that yielded the blockbuster settlements announced last week "diminished the leverage dealers had."

Said Jacoby: "Dealers could easily have taken part in this case and in the massive settlement -- and most knew that. It may be a missed opportunity ... depending on the solution arrived at with VW, if any."

But University of California, Berkeley law professor Andrew Bradt doubts that the dealers' damages claims would have the same leverage in court. He said U.S. Judge Charles Breyer made the claims of environmental regulators and consumers the priority.

"The judge was clearly focused on the consumers and on a speedy resolution to the controversy," Bradt said.

Lawyers say dealers could still file a class-action suit and have it transferred to the San Francisco federal court overseeing the VW litigation.

Anthony Sabino, a federal class-action expert and law professor at St. John's University in New York, said establishing a dealer class-action claim would be risky. Regulators could view VW dealer claims as a distraction from the larger issues of consumer and environmental redress. "Only the next few years will reveal whether the dealers made the correct strategic decision to not file a class action," Sabino said.

"They may come to congratulate themselves for their smarts, or they may come to regret it."