VW Faces Challenge in Getting Over-Emitting Cars Off Road

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By Patrick Ambrosio

June 30 — The proposed Volkswagen diesel settlement includes up to $10 billion in compensation for car owners and lessees, but consumer advocates said it will be a challenge for the automaker to get better-than-average participation in the settlement program.

The proposed partial settlement , announced June 28, will allow owners of affected Volkswagen diesels to sell their cars back to the automaker or, if a fix is approved, get a free repair accompanied by a cash payment to cover diminished value of the vehicle.

The settlement applies to about 475,000 two-liter diesels that were equipped with defeat devices—illegal technology that allowed the vehicles to pass emissions tests despite emitting far more pollution than allowed.

The settlement, which could be worth as much as $14.7 billion, also requires Volkswagen to either buyback or repair 85 percent of its over-emitting cars by June 30, 2019. For every percentage point the automaker falls short, it would have to pay an additional $85 million into an environmental remediation fund to offset the additional pollution caused by those vehicles staying on the road.

While the government pushed for a settlement that will “really make consumers whole,” convincing enough owners to either sell back their car or get it repaired won't be easy for Volkswagen, according to William Wallace, policy analyst for Consumers Union.

“That's a challenging level to hit, but we think appropriately so,” Wallace said. “It should provide a very aggressive target, especially in comparison for recall rates for other recent defects.”

VW Must Overcome Recall Woes

In a safety recall, as many as 30 percent of vehicle owners don't respond, according to Jack Gillis, director of public affairs at the Consumer Federation of America.

“There's a reasonable chance that consumer participation [for Volkswagen] will be even lower than a typical safety recall,” Gillis told Bloomberg BNA. “On the other hand, the offer is reasonable.”

The buyback price of each affected vehicle is based on the value of the car before the Volkswagen scandal became public in September, plus additional compensation. Payments under the buyback option will range from $12,500 to $44,000 depending on the make, model, mileage and other factors, Federal Trade Commission Chairwoman Edith Ramirez said during a June 28 news conference.

If a fix is approved, owners will receive a payment of between $5,100 and $10,000 to compensate them for diminished vehicle value.

Nominal Value of Affected Volkswagen

The nominal value of a Volkswagen diesel affected by the scandal is down by about $2,000 since the emissions issues were announced in September, according to Alex Klein, vice president of data science at Autolist.com .

Autolist, which allows users to search millions of used car listings, conducted an analyses of the effects of the diesel scandal on the used car market for Volkswagen diesels.

Klein told Bloomberg BNA the proposed settlement would represent compensation between 250 percent and 500 percent more than the lost vehicle value.

“At its core, the premium is very significant,” Klein said.

One big unknown is whether a fix will be reached and how it will affect the fuel economy and performance of the cars. Klein said the announcement of whether the vehicles can be fixed will be “a major turning point” in the resale value of Volkswagen diesels.

Negotiators Confident in Participation

The parties who negotiated the proposed settlement are confident that the compensation is substantial enough to attract consumers.

Mary Nichols, chairman of the California Air Resources Board, acknowledged the “long history” of recall campaigns that weren't successful in actually getting vehicles repaired.

Nichols told reporters June 28 that while regulators know some people will decide they like their car the way it is, the terms of the settlement should be generous enough to get people to either sell back their car or get it fixed, if a technical solution is approved.

“Volkswagen is putting up sufficient funds to attract, we believe, the majority of the people to bring the cars back in and fix them and resell them,” she said.

Elizabeth Cabraser, the lead attorney for the class action consumers who sued Volkswagen, said on a June 28 teleconference that the settlement offers “excellent options and choices” for owners and lessees of Volkswagen diesels. Lessees will be able to cancel their lease and receive a cash payment, or opt for a fix accompanied with a cash payment.

“We want them all to take advantage of these benefits,” she said.

Outreach Needed

Consumer advocates agreed that the compensation offered under the settlement is substantial but said that Volkswagen will need to make a significant effort to contact consumers.

Wallace of Consumers Union said Volkswagen will need to make the compensation process as “convenient as possible,” while also conducting public outreach in every way it can.

“VW needs to pull out all the stops,” he said.

Gillis of the Consumer Federation agreed that Volkswagen will need to make “extraordinary efforts” to contact owners and lessees to let them know about their settlement options. While Volkswagen collected data from owners upon sale of the vehicles, in recall situations there is always a “significant group” of second or third owners who may not have accurate mailing addresses on file, Gillis said.

“That's where VW is going to have to depend on publicity to communicate to that group,” Gillis said.

There will be an “extensive publication and multimedia campaign” to let Volkswagen customers know about the settlement, Cabraser said. In addition to the high level of interest in the Volkswagen scandal that already exists, Cabraser said the 85 percent threshold provides a “tremendous incentive” for the automaker to make sure that every single owner and lessee is aware of the settlement.

—With assistance from Carolyn Whetzel.

To contact the reporter on this story: Patrick Ambrosio in Washington at pambrosio@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

For More Information

More information on the proposed settlement is available at https://www.vwcourtsettlement.com/en/ .

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