VW ‘On Track’ to Meet Deadline for Diesel-Rigging Settlement

  • Judge repeats deal must include buybacks, cash, remediation
  • Automaker’s negotiations continue with lawyers for car owners

The federal judge demanding Volkswagen AG fix 480,000 diesel-cheating vehicles in the U.S. or get them off the road said the automaker is on pace to meet next month’s deadline to reach a deal with car owners.

U.S. District Judge Charles Breyer in San Francisco reiterated on Tuesday that buybacks, cash compensation for consumers and a fund to address damages from the excess emissions and future research must be part of any settlement. The deal to resolve civil claims over cars rigged to cheat pollution rules is said to be worth about $10 billion.

Breyer said that all participants in the talks, including the U.S. Justice Department, the Federal Trade Commission, have reported “substantial progress” in the past month since the tentative agreement was announced. He has said specific terms will remain confidential until the agreement is completed. He has told the lawyers to submit a written proposal by June 21. A hearing on preliminary approval of a settlement is scheduled for July 26.

The German carmaker is slowly recovering as it tries to appease regulators and regain customers’ trust after admitting in September that it rigged the exhaust systems of 11 million diesel-powered cars worldwide to pass official emissions tests. Chief Executive Officer Martin Winterkorn stepped down less than a week after the news broke, and Volkswagen has so far set aside 16.2 billion euros ($18.1 billion) to cover the costs of the scandal, including repairs and lawsuits.

The plan to be presented to the San Francisco judge covers about 480,000 2.0-liter diesel vehicles in the U.S. and will include some buybacks. The company is also said to be close to announcing a solution for the tainted 3-liter engines in the U.S. that affect 85,000 more vehicles.

“These agreements in principle are an important step on the road to making things right, as we work to earn back the trust of our customers, dealers, regulators and the American public,” Volkswagen said in a statement.

Remediation Fund

The preliminary accord with U.S. authorities includes a fund for remediation and has been agreed to by state and federal regulators. Volkswagen also agreed in principle on a settlement with class-action plaintiffs, which will be finalized in the coming weeks, the company has said in a statement.

The deal addresses civil claims by the U.S. government and lawsuits over diesel vehicles rigged to cheat pollution controls. It may not involve regulatory penalties or fines likely to be imposed on the carmaker.

Elizabeth Cabraser, the lead lawyer for car owners, said Volkswagen will offer to buy back vehicles, or give consumer the option have having them modified to meet U.S. and California emissions standards. She said the agreement will provide substantial monetary compensation beyond the buyback and repair program and also require the carmaker to offset the environmental damage caused by the diesel cheating.

“This settlement will provide substantial benefits to both consumers and the environment -- providing car owners and lessees fair value for their vehicles, while also removing environmentally harmful vehicles from the road,” Cabraser said in a statement.

While securing a settlement would be a milestone for Volkswagen, other obstacles stand in its way to fully emerge from the eight-month-old crisis. Those hurdles include a federal criminal probe and investigations by state attorneys general.

Shock Waves

The diesel-cheating scandal has sent shock waves across the industry and triggered VW’s first annual operating loss since 1993. Admissions of manipulation and allegations of cheating by other carmakers have pressured authorities to step up scrutiny of real-world emissions and fuel economy. 

In an effort to rebound, Volkswagen is preparing a plan comprised of eight key initiatives through 2025, CEO Matthias Mueller said Friday, according to excerpts of a speech at an internal management meeting at the carmaker’s headquarters in Wolfsburg, Germany. The plan, to be disclosed in June, is part of an effort to abandon old habits like centralized decision-making, allowing VW to become more open to cooperation with other companies.

VW climbed 2.5 percent Tuesday to 137.13 euros in Frankfurt. The shares have fallen 1 percent since both sides told Breyer of their agreement on April 21.

The case is In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices and Products Liability Litigation, MDL 2672, U.S. District Court, Northern District of California (San Francisco).

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