Volkswagen reaches $1 billion agreement to fix, buy back 3.0-liter U.S. diesels

WASHINGTON -- Volkswagen AG has agreed to a $1 billion settlement to fix or buy back another 80,000 polluting U.S. diesel vehicles as the German automaker on Tuesday took new steps to put its emissions cheating scandal behind it.

The settlement deal covered luxury VW, Audi and Porsche vehicles with 3.0-liter engines, meaning Volkswagen has now agreed to spend as much as $17.5 billion in the U.S. to resolve claims over polluting diesels from owners as well as federal and state regulators.

But the world's No. 2 automaker still faces the possibility of spending billions of dollars more to resolve a U.S. Justice Department criminal investigation and federal and state environmental claims.

The agreement, settling part of litigation brought against VW by federal and California regulators, "is another important step forward in our efforts to make things right for our customers," Hinrich Woebcken, CEO of Volkswagen Group of America, said in a statement.

Volkswagen also agreed to boost electric vehicle efforts in California as part of the settlement and faces additional costs as it works to finalize an agreement to provide substantial compensation to the owners of the 3.0-liter vehicles.

U.S. District Judge Charles Breyer announced the settlement during a hearing in San Francisco. Breyer in October approved VW's earlier settlement worth about $15 billion with regulators and the U.S. owners of 475,000 polluting diesel vehicles with smaller 2.0-liter engines, including an offer to buy back all of the cars.

Breyer on Tuesday also said German engineering company Robert Bosch GmbH, which produced the software for the VW diesels, has agreed in principle to settle civil allegations made by U.S. diesel vehicle owners. The company confirmed it had reached the agreement, but declined to discuss specifics.

Reuters reported on Monday that the settlement was expected to be worth more than $300 million.

VW admitted in September 2015 to installing secret software known as "defeat devices" in 475,000 U.S. 2.0-liter diesel cars to cheat exhaust emissions tests and make them appear cleaner in testing than they really were. In reality, the vehicles emitted up to 40 times the legally allowable pollution levels.

The company later admitted to also using "defeat devices" in the 3.0-liter vehicles. The 80,000 3.0-liter U.S. vehicles had an undeclared auxiliary emissions system that allowed the vehicles to emit up to nine times allowable limits.

The scandal hurt VW's global business and reputation, and led to the ouster of longtime CEO Martin Winterkorn. 

Cynthia Giles, U.S. Environmental Protection Agency assistant administrator, estimated that the costs of buybacks, fixes and diesel offsets agreed to by VW amounted to about $1 billion. The Justice Department said VW agreed to contribute another $225 million to a fund to offset excess diesel emissions.

Volkswagen on Monday also agreed to spend up to $1.6 billion to buy back up to 105,000 polluting 2.0-liter vehicles in Canada.

Electric vehicles in Calif.

California said in a separate court filing that Volkswagen agreed to add by 2020 at least three additional electric vehicles, including an SUV, in California and must sell an average of 5,000 electric vehicles annually. Volkswagen also agreed to pay California's state air board $25 million, the state said.

VW reached the new deal on vehicle fixes and buybacks with the Justice Department, EPA and California state officials. Under the deal, VW will buy back or fix 20,000 of the 3.0-liter diesels and fix another 60,000. The automaker still must get U.S. regulatory approval for those fixes. The judge still must give final approval to the deal.

The buyback offer is for about 20,000 2009-2012 Volkswagen Touareg and Audi Q7 diesel models. If VW had been forced to buyback all of the vehicles it could have added billions of dollars to the company's costs.

California Air Resources Board executive officer Richard Corey said the settlement shows "cheaters will be caught and held accountable."

Breyer said owners of 3.0-liter vehicles would receive "substantial compensation" for getting their vehicles fixed or repaired, but said there were some remaining issues to be resolved, and set a another hearing for Thursday for an update.

"The settlement marks another significant step in holding Volkswagen accountable for cheating Americans out of the promise of cleaner air by selling vehicles equipped with defeat devices," U.S. Assistant Attorney General John Cruden said. But he added: "This is not the last step."

He declined to say if the administration would reach a settlement before President Barack Obama leaves office on Jan. 20.

Volkswagen Group's U.S. sales are down 5.5 percent this year as it has been barred from selling all U.S. diesels since late 2015. The company has said it is undecided if it will eventually resume diesel sales.

Bosch statement

Meanwhile, Bosch acknowledged in a statement it supplied the electronic engine control units for VW's tainted diesel engines, but the German company didn't disclose terms of its settlement, pending court approval. 

"By joining the settlement process, Bosch neither acknowledges the facts as alleged by the plaintiffs nor does Bosch accept any liability," the statement said. "Upon careful consideration of all relevant aspects in this case, Bosch decided to enter the agreement in principle announced by the judge today.

"The agreement in principle concerns only private claims. As it has done since allegations were first made, Bosch will continue to cooperate comprehensively with the investigating authorities in Germany and in other countries."

Automotive News contributed to this report.