WASHINGTON (June 29, 2016) — Volkswagen A.G.'s decision to violate U.S. emissions rules on 2-liter diesel vehicles, a cornerstone of its vehicle lineup, will cost the company more than $15 billion under far-reaching settlements with car owners, the federal government and dozens of states.
Included in the settlements, announced by U.S. officials on June 28, is up to $10 billion for customer buybacks, early lease terminations and customer restitution payments, according to a summary filed in U.S. District Court in San Francisco, which is overseeing the VW litigation.
Under pressure from the U.S. Environmental Protection Agency (EPA), the auto maker admitted in September that it had rigged 2.0-liter diesels with software to mask harmful nitrogen oxide emissions during U.S. government lab tests since the 2009 model year, affecting some 500,000 vehicles stateside.
The Germany-based auto company later admitted that about 11 million vehicles worldwide had the illegal “defeat device” software, plunging it into an epic scandal that has tanked its stock price and put the company under siege from angry shareholders, regulators, customers and dealers.
Following what Deputy U.S. Attorney General Sally Yates called “one of the most flagrant violations of environmental and consumer laws in our country's history,” each owner of an affected diesel will get the repurchase price of their vehicle plus $5,100-$10,000 depending on the model and year.
Owners eligible for compensation can also wait and see if VW comes up with a repair for the diesel engines, pending regulator approval. Owners choosing a fix will also receive the $5,100-$10,000 payout.
Total compensation for owners who choose the buyback ranges from a low of about $12,500 to a high of about $44,000, U.S. officials said. The amounts include the buyback values based on pre-scandal “clean” trade-in values according to the National Automobile Dealers Association and the lump sum payouts.
Lessees who terminate their leases early will receive about half of what an eligible owner would receive for an equivalent vehicle. Owners with loans that exceed their vehicles' value selecting a buyback may be eligible for loan forgiveness, as well.
In addition, VW will contribute $2.7 billion in a trust to fund environmental programs nationwide to reduce nitrogen oxide emissions. VW also is required to spend $2 billion to “promote” the market for battery-electric or hydrogen fuel cell vehicles, in addition to what the company has already earmarked for investment in alternative-fuel technologies, according to the summary.
Eligible projects under the clean car fund could include installing public charging stations or electric car education campaigns.
“Using the power of the Clean Air Act, we're getting VW's vehicles off the road and we're reducing harmful pollution in our air...that never should have been emitted in the first place,” EPA Administrator Gina McCarthy said.
VW also reached a separate settlement with at least 44 U.S. states, the District of Columbia and Puerto Rico that will cost at least $600 million.
The settlements come after months of intense negotiations overseen by former FBI Director Robert Mueller among Volkswagen, U.S. officials and attorneys representing owners of the affected VW diesels. Parts of the agreement were leaked to the media last week.
The deals announced June 28 represent a partial settlement of the U.S. government's diesel claims against VW. The company still faces potentially billions of dollars more in civil penalties from the EPA under the Clean Air Act, injunctive relief and the outcome of the Justice Department's criminal probe into VW, a U.S. official said after the press conference.
If VW and the government fail to reach a settlement for civil penalties under the Clean Air Act, Judge Charles Breyer could order a penalty establishing monetary fines that take into consideration the economic benefit that VW gained by violating the law, according to a U.S. official.
Members of the public may comment on the proposed settlements after the documents are filed in federal court. A preliminary hearing to approve the consumer class-action settlement is scheduled for July 26. A consumer website has been established to handle the settlement at www.vwcourtsettlement.com.
After receiving final approval from the court, VW could begin the buyback and compensation program as early as this fall.
The $10.03 billion set aside for buybacks and cash payouts for owners represents the maximum VW will pay to owners of the 2.0-liter vehicles under the deal.
The terms require VW to buyback or otherwise repair at least 85 percent of the 475,000 affected 2.0-liter diesels by June 30, 2019. If VW fails to do so, the company must contribute an additional $85 million for each percentage point it falls short of the 85 percent threshold to the $2.7 environmental remediation trust, according to a U.S. official.
Handling of the buybacks by VW and dealers will be subject to special oversight by a court-approved claims supervisor. Consumers who are unhappy with the process can report problems to a claims review committee, according to the deal.