DETROIT (Aug. 26, 2016) — Volkswagen A.G. has reached an “agreement in principle” to compensate its 650 U.S. retailers for damages sustained by their businesses in the wake of the auto maker's diesel emissions scandal.
The deal would be worth more than $1.2 billion, Reuters reported, citing two sources briefed on the matter.
Under the terms of the preliminary pact, dealers will receive a cash payout from a settlement fund within 18 months, according to a statement from Hagens Berman, a law firm representing VW dealers involved in litigation overseen by U.S. District Judge Charles Breyer in San Francisco. In addition, VW has agreed to repurchase “unfixable, used” diesel vehicles from dealer inventory under the same terms as buyback offers for consumers, Hagens Berman said.
Dealer payouts will be determined by a formula that is being finalized and will be announced in the coming weeks, according to the law firm. A particular dealer's payout will vary based on the size of the dealership and its market, “among other factors.”
A VW spokeswoman confirmed those aspects of the deal, but declined to elaborate further, citing an agreement to maintain confidentiality amid negotiations to finalize the pact.
The deal is subject to court approval by Judge Breyer and many details are still being negotiated, VW and Hagens Berman said. A final settlement proposal must be submitted for court approval by Sept. 30.
In a statement, VW North America CEO Hinrich Woebcken called the preliminary agreement a “very important step in our commitment to making things right for all our stakeholders in the United States.”
“This agreement, when finalized, will strengthen the foundation for our future together and further emphasize our commitment both to our partners and the U.S. market,” Mr. Woebcken said.
VW dealers were “blindsided” by the emissions scandal, Steve Berman, managing partner at Hagens Berman, said in a statement.
Many VW dealers have called for compensation as the value of their VW franchises has plummeted along with sales and showroom traffic since the company admitted last September to rigging some 11 million diesel vehicles worldwide with illegal software to fool emissions tests, including more than 500,000 in the U.S.
During a court hearing in San Francisco aug. 25, Mr. Berman said, “we're pleased that the settlement will address the financial harm that they've incurred.”
Mr. Berman represents VW dealer Ed Napleton, who sued the factory last April in U.S. District Court for the Northern District of Illinois. The suit was later transferred to the VW litigation overseen by Judge Breyer in San Francisco.
Meanwhile, a group of six dealers have been pressing the factory for a compensation deal for months. The Dealer Investment Committee formed in late March, on the sidelines of the National Automobile Dealers Association (NADA) convention in Las Vegas. At the time, some retailers were considering lawsuits against VW for damages, according to lawyers, and at least one potential class action was drafted and waiting to be filed.
For some dealers determined to keep relations amicable, the formation of the committee represented a way to pursue financial relief without a court fight.
But nearly six weeks passed without any clear signs of progress, prompting frustration and disappointment among some dealers. Volkswagen agreed to begin talks in May.
Alan Brown, chairman of VW's dealer council and one of the Dealer Investment Committee members, praised the “amazing team effort” of VW, attorneys and dealers that produced the preliminary pact.
“It's been a lot of hours and lot of work and I believe that the dealers are going to be really pleased with the package that's coming their way,” Mr. Brown told Automotive News. “I feel very confident that this will satisfy every dealer, and I believe every dealer will accept it.”
Under proposed deal, VW will agree to treat its dealers as a class of plaintiffs in order to facilitate the settlement. In its statement, VW said the deal intends to resolve “alleged past, current and future claims of losses in franchise value.”
Last month, Judge Breyer approved a separate $15 billion VW settlement with consumers and government agencies under which Volkswagen will pay cash compensation to owners of its 2.0-liter diesel vehicles, buy back vehicles equipped with illegal software and fund environmental programs.
The judge, meanwhile, ordered Volkswagen and federal regulators to start settlement talks to resolve the fate of 85,000 3.0-liter diesel vehicles that could include a buy-back offer for those Porsche, Audi and Volkswagen vehicles.
Buying the expensive larger cars and SUVs sold since 2009 could cost VW billions of dollars.
Judge Breyer set a Nov. 3 hearing for an update on the status of the talks and emphasized the urgency of resolving the issue. He said he wanted to ensure “a strong sense of reality” in finding a solution.
VW must submit by late October its specific plans to fix the 3.0-liter vehicles, which it said include a mix of software upgrades and emissions equipment modifications.
Reuters contributed to this report, which appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.