Volkswagen will pay $1.2 billion to settle U.S. dealer claims

WASHINGTON -- Volkswagen AG confirmed late Friday it will make $1.21 billion in payments to 652 U.S. brand dealers as part of a $16.5 billion diesel emissions settlement.

VW dealers will receive an average of $1.85 million each over 18 months, on average, under the settlement that was first announced in principle in August.

Separately, the Justice Department, Federal Trade Commission and lawyers for owners of 475,000 polluting diesel cars filed legal papers late Friday asking a federal judge to grant final approval to buy-back offers and diesel remediation efforts at an Oct. 18 court hearing.

A filing by lawyers for company dealers says Volkswagen won't sell any U.S. diesel vehicles for the 2016 and 2017 model years. The company, which has been barred from selling all diesel vehicles in the United States since late 2015, said earlier this month it is uncertain whether it will ever sell diesel vehicles in the United States again.

As part of the settlement with VW brand dealers, the company will continue making some incentive payments to dealers, buy back diesel vehicles that dealers can't sell and suspend capital improvements for two years that it wanted dealers to make. A federal judge must still approve the settlement.

The emissions violations have outraged VW's U.S. dealers because they invested heavily in new, large stores in hopes of seeing the brand sell 800,000 vehicles a year, a goal set by former VW CEO Martin Winterkorn.

The VW brand sold 349,440 cars and light trucks in the U.S. last year. U.S. deliveries at the VW brand have dropped 13 percent to 207,156 this year through August.

Working on 'technical solution'

Volkswagen still faces billions of dollars in potential civil and potential criminal U.S. fines for violating emissions laws, as well as a possible costly buy-back of 85,000 vehicles equipped with 3.0-liter diesel engines if it can't convince regulators that they can be fixed.

The Justice Department said Friday in a court filing that regulators are still working on "a technical solution that reduces the emissions of these vehicles."

Reuters reported that Volkswagen has held talks in recent months with the Justice Department about settling the criminal investigation. "The United States will continue to vigorously pursue its claims for civil penalties to fully hold (Volkswagen) accountable," the Justice Department filing said Friday.

VW has admitted it installed improper software that deactivated pollution controls on more than 11 million diesel vehicles sold worldwide.

In June, VW agreed buy back 475,0000 U.S. vehicles equipped with 2.0-liter engines at a cost of up to $10.03 billion or offer fixes if regulators approve. To date, about 311,000 owners have already registered to take part in the settlement and only about 3,300 owners have opted out.

VW also agreed to spend up to $5.3 billion to address claims by federal regulators and 44 U.S. states. VW is still in talks with the Justice Department about winning approval for proposed fixes for the 2.0-liter vehicles.

Under the Justice Department deal, VW will provide $2 billion over 10 years to fund programs to promote construction of electric vehicle charging infrastructure, development of zero-emission ride-sharing fleets and other efforts to boost sales of cars that do not burn petroleum.

VW also agreed to put up $2.7 billion over three years to enable government and tribal agencies to replace old buses or to fund infrastructure to reduce diesel emissions and award states about $600 million..

The Justice Department said it received nearly 1,200 comments on the proposed consent decree but said it was making only some minor, mostly technical changes to the agreement.

Bloomberg contributed to this report.