VW to Pay Up to $14.7B in ‘Ground-Breaking' Settlement

By Patrick Ambrosio

June 28 — Volkswagen AG would pay as much as $14.7 billion under a proposed partial settlement that would allow hundreds of thousands of car owners to sell their diesel vehicles back to the automaker, government officials announced.

The proposed settlement, if approved by a federal district court judge, would require Volkswagen to create a $10 billion compensation fund for owners who purchased diesel models of the Volkswagen Passat, Golf and other models that were outfitted with illegal technology known as emissions defeat devices. Those devices allowed the vehicles to cheat emissions tests by emitting far more pollution than allowed.

EPA Administrator Gina McCarthy June 28 touted the “unprecedented” scope of the proposed settlement, which also includes $2.7 billion that will fund environmental remediation projects to offset the excess pollution caused by Volkswagen's actions, as well as a $2 billion fund to promote the development and adoption of zero emissions vehicle technology.

“EPA has achieved what has to be called a ground-breaking settlement,” McCarthy said at a press conference. “Today, using the power of the Clean Air Act, we’re getting VW’s polluting vehicles off the road, and we’re reducing harmful pollution in our air.”

While government officials touted the size of the proposed settlement, it wouldn't completely resolve Volkswagen's emissions issues. The partial settlement only covers about 475,000 two-liter diesel vehicles sold by Volkswagen in the U.S. and doesn't include civil penalties that could be assessed under the Clean Air Act.

In addition, Volkswagen also still must address three-liter diesel engine vehicles sold in the U.S. that are alleged to contain illegal defeat devices, and there is the possibility of criminal charges against the company and individual executives (see related story).

Official Sees ‘Significant Step Forward.'

Matthias Muëller, Volkswagen's chief executive officer, said the company views the proposed settlement as a “significant step forward” for the automaker.

“We know that we still have a great deal of work to do to earn back the trust of the American people,” Muëller said in a June 28 statement. “We are focused on resolving the outstanding issues and building a better company that can shape the future of integrated, sustainable mobility for our customers.”

In addition to the proposed settlement with the consumer class action plaintiffs and the federal government, Volkswagen also reached a proposed settlement with more than 40 states to resolve allegations that the automaker engaged in deceptive marketing and trade practices. That settlement, which will require the automaker to pay states about $1,100 per vehicle, will generate more than $500 million in payments and bring the total amount Volkswagen agreed to pay to more than $15.2 billion.

Total Settlement Amount Unknown

Government officials noted that while Volkswagen agreed to pay up to $14.7 billion under the settlement, the actual value of the settlement will depend on consumers. Volkswagen said in a June 28 news release that the $14.7 billion figure assumes that 100 percent of customers participate in the settlement and that 100 percent of the customers choose to either sell their car back to Volkswagen or terminate their lease.

Consumers may have another option if regulators approve a technical upgrade that would bring the cars into compliance with nitrogen oxides emissions standards. Cynthia Giles, EPA assistant administrator for enforcement and compliance assurance, told reporters June 28 that any approved fix would reduce nitrogen oxides emissions from the diesel vehicles by 80 percent to 90 percent.

“It's within the range of emissions that could have been certified when these vehicles were originally made,” Giles said.

The proposed $10 billion compensation fund is the largest in the history of the Federal Trade Commission, according to Chairwoman Edith Ramirez. The settlement will allow for customers to sell their cars back to Volkswagen “at favorable prices,” she said.

Buyback to Reflect Original Value

“Everyone who elects a buyback will receive what his or her car was worth before VW's deception became public, as well as compensation for other losses, such as the time and taxes needed to buy a new car,” Ramirez said.

Payments under the buyback option will range from $12,500 to $44,000 depending on the make, model, mileage and other factors. Along with the settlement, the FTC filed a document with the court that outlines how vehicles will be valued for the purposes of the buyback program.

If a technical emissions fix is approved, it will be offered to customers at no charge. In addition, customers who opt to have their vehicle repaired will receive between $5,1000 and $10,000 to compensate them for diminished value, according to Ramirez.

Approval Possible This Year

The proposed settlement will be subject to a 30-day public comment period, as well as final approval by Judge Charles Breyer of the U.S. District Court for the Northern District of California. A final approval hearing on the settlement will happen later in 2016, likely in early October, according to Elizabeth Cabraser, lead attorney for the consumer plaintiffs.

Cabraser, a partner at Lieff Cabraser Heimann & Bernstein LLP, told reporters on a June 28 teleconference that the claims process will be open after the settlement receives final approval.

“There will be no delay in the settlement program because of any appeals,” Cabraser said. “This program will move forward.”

Consumers will have time to review their options and wait for a potential fix to be approved if they would like to keep their cars, Cabraser said. Volkswagen owners won't have to make their decision until the program ends on Sept. 1, 2018, she said.

“I don't think any consumer needs to feel rushed here,” Cabraser added.

VW to Fund Environmental Efforts

In addition to compensating consumers, the settlement would require Volkswagen to spend at least $4.7 billion on environmental remediation programs. About a quarter of that money will be allocated to California, which contains areas with the most polluted air in the U.S.

California will receive $1.1 billion under the settlement, including $800 million to fund installation of zero-emission vehicle infrastructure, car-sharing projects to increase access to zero-emission vehicles and money to fund consumer awareness campaigns touting those vehicles.

Mary Nichols, chairwoman of the California Air Resources Board, said the settlement is “laying the groundwork for the vast expansion” of zero-emissions vehicles in the state.

“This is really an amazing deal for California consumers and the people of the nation,” Nichols said.

Structure Reflects Recommendations

Bill Becker, executive director of the National Association of Clean Air Agencies, said the proposed settlement is “very similar” to the structure recommended by state air pollution control agencies in May.

Becker noted that the $2.7 billion fund that will be made available to states and tribes to reduce nitrogen oxides pollution is designed after the successful Diesel Emissions Reduction Act, or DERA, grant program, which funds projects to upgrade or replace older, higher-emitting diesel technology.

The proposed settlement includes the largest monetary obligation that a company has made to mitigate pollution under the Clean Air Act, according to Deputy Assistant Attorney General Sally Yates.

“We can’t undo the damage that Volkswagen caused to our air quality…you can’t suck the NOx out of the air,” Yates said. “But what we can do is offset that damage by reducing pollution from future sources.”

With assistance from Carolyn Whetzel in Los Angeles

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

The proposed partial consent decree is available at http://src.bna.com/gjs .

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

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