WASHINGTON -- Can Volkswagen's noncompliant diesels be fixed?
The answer to that question will largely determine the burdens that VW dealers will have to shoulder -- or the bounty they will share -- in coming years under the $10 billion-plus buyback program and consent decree reached with regulators and other parties June 28.
Many other pivotal questions remain unresolved, too, including whether and when VW can resume selling diesels in the U.S. For now, dealers are looking to a series of regional meetings planned for this week and next, where Volkswagen officials will explain how the buybacks and fixes will go down.
Top of mind for dealers like Shannon Harper, a VW dealer in Knoxville, Tenn., is whether they'll be able to use the factory-repurchased vehicles to restock their inventories.
Before the scandal, diesels accounted for around 30 percent of new-vehicle sales at Harper's dealership. Demand is still high but supplies are razor-thin amid a stop-sale for new and certified pre-owned diesels, plus the slowdown in diesel trades from customers who waited months for word on a buyback, he said.
"We could take as many as we could get our hands on right now," he said.
The terms of VW's consent decree with the U.S. Department of Justice require the company to perform regulator-approved emissions repairs before it can resell or export any of the affected 2.0-liter diesels it buys back. If VW's fix proposals aren't approved, or if VW fails to propose fixes, the cars must be scrapped.
The deal gives VW ample incentive to come up with a technical solution: Each car it fixes is one it won't have to scrap or even buy back. If enough customers opt for fixes, VW could theoretically spend less on the consumer settlement than the $10.03 billion it allocated for the buybacks.
And it gives VW time by way of an October 2017 deadline to submit complete fix proposals for the three generations of diesel engines loaded with the emissions-masking software.
But proposals will likely come in much sooner. According to the agreement, regulators expect to receive proposed fixes for 2015 model year diesels by July 29. Proposals for 2009-14 models are expected by mid-December.
"Whether that fix materially impacts the drivability or the efficiency of the powertrain remains to be seen," said Patrick Min, senior analyst at ALG. "That will drive the demand."
If the proposed fixes are approved by the EPA and California's Air Resources Board, a fresh supply of late-model diesels would be available for VW dealers to sell.
The fixes will also add work for dealer service departments. Under the terms of the deal, VW has to buy back or repair at least 85 percent of the 475,000 affected 2.0-liter diesels by June 30, 2019, or more than 2,900 vehicles per week starting Nov. 1. For each percentage point it falls short of that target, VW has to pay an additional $85 million into the $2.7 billion environmental trust fund created by the settlement.
For dealers looking to dig out of a sales hole, getting a fresh supply of new diesels is another priority. Yet as VW begins the 2017 model year, the brand still hasn't applied for regulatory approvals needed to resume new diesel sales, according to the EPA. (See story above.)
Matt Welch, general manager of Auburn VW near Seattle, says new TDI models would go a long way toward satisfying nine months of pent-up demand and helping retain diesel owners who are set to receive a major payout through the buyback program of as much as $10,000, depending on the model and year, on top of the buyback price.
"You're going to have a huge influx of money in customers' hands who will be free agents," he said, adding: "I'm sure other brands will be going after them."
Welch says he's not expecting new diesels anytime soon; the good news is that the buybacks will play out over the next two years.
"You just work to keep them in the brand," he said.
