Volkswagen is taking a major step toward compensating owners and government regulators for its emissions cheating scandal. But it will take much longer to repair the damage to its reputation.
The German automaker has agreed to spend up to $15.3 billion to settle consumer lawsuits and government allegations that its diesel cars cheated on US emissions tests. The settlement announced Tuesday is believed to be the largest auto-related class-action settlement in US history.
Up to $10 billion will go to 475,000 VW or Audi diesel owners. VW agreed to either buy back or repair their vehicles, although it hasn’t yet developed a fix for the problem. Owners will also receive payments of $5,100 to $10,000.
The settlement still must be approved by US District Judge Charles Breyer, who has set a July 26 hearing for preliminary approval. Final approval is expected in October.
Owners expressed relief that a plan is finally coming together nine months after the scandal was uncovered. But they’re still angry. Diesel owners thought they were buying high-performance, environmentally friendly cars; they felt betrayed when they learned the vehicles’ emissions vastly exceeded US pollution laws “I will never buy a car from this company again,” said Zandy Hartig, a Los Angeles actress who owns a diesel-powered 2013 Jetta SportWagen.
“I don’t want to project the image of a company that lied to me.” Hartig is opting for the buyback. She loves her car and wishes she could keep it, but she doesn’t trust Volkswagen to come up with a fix that will stop polluting.
The scandal has also damaged VW-brand sales. In the first five months of 2015, before the scandal, Volkswagen sold 144,006 cars in the US. In the first five months of this year, the total fell 13 percent to 125,205.
Sales at the company’s other main brands – Audi and Porsche – are up, but they have fewer diesel models. Volkswagen dealer Steve Kalafer of Flemington, New Jersey, says owners will likely welcome the buyback money but will shop elsewhere once they get it.
“They want to know when they get paid and how they can be done with Volkswagen,” he said. Kalafer says his sales are down 20 percent to 50 percent each month compared with a year ago.
Volkswagen gave a hint to its plan to restore its reputation last week, when it announced that it will introduce more than 30 electric-powered vehicles by 2025.
Jessica Caldwell, the director of industry analysis for the car shopping site Edmunds.com, says it will take a while for people to trust Volkswagen as an environmentally friendly brand. But history is on its side.
“Other automakers have successfully weathered their own high-profile scandals, and VW has the resources and infrastructure in place to do the same,” Caldwell said.
The settlement also includes $2.7 billion for environmental mitigation and another $2 billion to promote zero-emissions vehicles. Volkswagen also settled claims with 44 states, Washington, D.C., and Puerto Rico for about $603 million.
It still faces billions more in fines and penalties as well as possible criminal charges. Volkswagen has acknowledged that the cars, equipped with 2-liter diesel engines, were programmed to turn on emissions controls during government lab tests and turn them off while on the road.
Investigators determined that the cars emitted more than 40 times the legal limit of nitrogen oxide, which can cause respiratory problems in humans.
The company got away with the scheme for seven years until independent researchers reported it to the Environmental Protection Agency. “It should send a very clear message that when you break the laws designed to protect public health in this country, there are serious consequences,” said Gina McCarthy, administrator of the EPA.
If the settlement is approved, owners who choose to have VW buy back their cars would get the National Automobile Dealers Association clean trade-in value from before the scandal became public on Sept. 18, 2015. That would be $12,500 to $44,000, depending on the model, age, mileage and options on their car, the Justice Department said in a statement.
Models covered by the settlement include the 2009-2015 Jetta and Audi A3, the 2010-2015 Golf, and the 2012-2015 Beetle and Passat, all with 2-liter diesel engines. Lawyers are still working on settlements for another 80,000 vehicles with 3-liter diesel engines.
Owners can also have VW repair the cars for free – assuming it comes up with a fix. According to court documents filed Tuesday, there currently is no repair that can bring the cars into compliance with U.S. pollution regulations.
When VW eventually proposes a repair, it must be approved by the Environmental Protection Agency and the California Air Resources Board. VW has to submit proposed fixes to the EPA between November 2016 and October 2017.
Any repair that regulators approve could hurt the cars’ acceleration and fuel economy. The EPA said Tuesday that any fix VW develops won’t bring the cars in full compliance with clean air laws.
The $2.7 billion in environmental mitigation will go toward offsetting the increased pollution, the agency said. Volkswagen marketed the cars as more fuel efficient and better performing that those with regular gasoline engines. If it can’t come up with a repair, VW could have to buy back most of the vehicles.
Volkswagen also will pay off customers’ loans if they owe more than their car is worth due to rapid depreciation. Owners will have the option of having VW retire loans up to 130 percent of the cars’ value before the scandal.
Owners can still decline Volkswagen’s offer and sue the company on their own. The company has to buy back or repair 85 percent of the vehicles by June 30, 2019, or pay even more money into an environmental trust fund.
Elizabeth Cabraser, lead attorney for consumers who sued the company, said the agreement holds Volkswagen accountable to consumers and to the environment. Cabraser said plaintiffs are also pursuing a case against German auto supplier Bosch, which supplied engine control computers for VW diesels.
VW said in April that it has set aside $18.2 billion to cover the cost of the global scandal, which includes a total of 11 million vehicles worldwide. “We take our commitment to make things right very seriously and believe these agreements are a significant step forward,” Volkswagen AG CEO Matthias Mueller said Tuesday in a statement.
The scandal erupted in September when US regulators revealed that the German automaker had fitted many of its cars with software to fool emissions tests.
The company, which knew the EPA’s testing routine, was finally caught by the International Council on Clean Transportation, which hired West Virginia University to test a VW in real roads conditions. The EPA has since changed its testing to include on-road tailpipe checks.
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