Wed | Aug 23, 2017

Volkswagen to buy back autos under US$15b settlement

Published:Wednesday | June 29, 2016 | 6:00 AM
VW Jetta

Volkswagen will spend up to US$15.3 billion to settle consumer lawsuits and government allegations that it cheated on emissions tests, in what lawyers are calling the largest auto-related class-action settlement in United States history.

Up to US$10 billion will go to 475,000 VW or Audi diesel owners, who thought they were buying high-performance, environmentally friendly cars, but later learnt the vehicles' emissions vastly exceeded US pollution laws.

VW agreed to either buy back or repair the vehicles - although it has not yet developed a fix for the problem. Owners will also receive payments of US$5,100 to US$10,000, depending on the age of their vehicles.

The settlement also includes US$2.7 billion for environmental mitigation and another US$2 billion for research on zero-emissions vehicles. The German automaker also settled claims with 44 states, Washington, D.C., and Puerto Rico for about US$603 million. It still faces billions more in fines and penalties as well as possible criminal charges.

DANGEROUS EMISSIONS

Volkswagen has admitted that the two-litre diesels 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.

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 September 18, 2015. That would be US$12,500 to US$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 2.0-litre 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 US pollution regulations. If VW eventually proposes a repair, it must be approved by the Environmental Protection Agency and the California Air Resources Board.

Volkswagen will also 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 per cent of the cars' value before the scandal.

If VW can come up with a repair that meets EPA and California standards, it's likely to hurt the cars' acceleration and fuel economy. Volkswagen marketed the cars as both more fuel efficient and better performing than those with regular gasolene engines. VW has to submit any proposed fixes to the EPA between November of 2016 and October of 2017.

The settlement still must be approved by US District Judge Charles Breyer, who has set a hearing for preliminary approval on July 26. Owners can choose to decline Volkswagen's offer and sue the company on their own.

The company has to buy back or repair 85 per cent of the vehicles or pay even more money into an environmental trust fund.

"This historic agreement holds Volkswagen accountable for its betrayal of consumer trust and requires Volkswagen to repair the environmental damage it caused," said Elizabeth Cabraser, the lead attorney for consumers who sued the company.

NO POSSIBLE FIX

Unless it can develop a suitable fix, VW may be forced to buy back all the 2.0-litre vehicles. But it appears from documents filed by the Justice Department and EPA that the technology might not be available to fix them. VW has been working on repairs since around the time the scandal broke.

"At the present time, there are no practical engineering solutions that would, without negative impact to vehicle functions and unacceptable delay, bring the 2.0 Litre subject vehicles into compliance with the exhaust-emission standards and the on-board diagnostics requirements," the order said.

Lawyers are still working on settlements for another 80,000 vehicles with 3.0-litre diesel engines.

Volkswagen says the US$10 billion consumer settlement assumes that it will buy back all of the cars.

"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 in a statement.

VW said in April that it has set aside US$18.2 billion charge to cover the cost of the global scandal, which includes a total of 11 million vehicles worldwide.

- AP