- Without fix, consumers may buck buyback plan now under review
- Company still faces suits, U.S., German, South Korean probes
Volkswagen AG is racing toward resolution of more than 1,000 consumer lawsuits over emissions-cheating software, but it may be years before 482,000 polluting vehicles are either taken off U.S. roads or repaired.
Car owners who don’t like those options can pick another that isn’t even part of the deal now up for court approval: drive their diesel Jettas, Beetles and Passats until the wheels come off.
The San Francisco federal judge who demanded in February that Volkswagen get the cars off the road turned his attention Tuesday to the carmaker’s plans to buy back the vehicles for as much as $10 billion. While fixing the cars might cost far less, the company so far hasn’t been able to devise a plan that passes muster with U.S. regulators.
Owners are under no obligation to accept the buyback offer for the value of the cars before Volkswagen’s test-rigging scheme was disclosed, plus $5,100 to $9,852 in additional compensation. If the carmaker fails to win the Environmental Protection Agency’s approval for fixes before June 30, 2019, there’s nothing to stop owners from driving the pollutant-spewing cars as long as they don’t run afoul of regulations set by individual states.
Under the terms of the proposed settlement, the company is required to buy back or fix 85 percent of cars by the 2019 deadline. Meeting that target would cost the company a maximum of $14.7 billion, including $4.7 billion in government penalties and remediation. That would eat up almost all of the 16.2 billion euros ($17.8 billion) the company set aside last year to cover the cost of the scandal worldwide.
Volkswagen is also on the hook for $603 million that the company agreed to pay 44 states, and it faces more state government claims and investor class actions in the U.S., lawsuits in Germany and South Korea and possible criminal penalties in all three countries. The German manufacturer took a 2.2 billion-euro charge in the second quarter, chiefly related to legal risks in the U.S. The company will report full earnings figures on Thursday.
U.S. District Judge Charles Breyer is weighing whether to grant preliminary approval to the settlement even though there isn’t an approved fix, leaving a buyback as the only current legal option. If Volkswagen falls short of the 85 percent target, it will have to pay $85 million more into an environmental mitigation trust for each percentage point of the shortfall. It would also have to pay an additional $13.5 million into the trust for each percentage point it falls below the target in California.
“It’s not a simple settlement. I’ve never seen so many pages,” Breyer said at a hearing Tuesday. “It is extremely important that consumers and lawyers representing consumers understand and are privy to and are fully informed to all the details that are in this action before making a decision.”
Elizabeth Cabraser, lead lawyer for the consumers, told the judge “the money is a means to an end that cannot be achieved without a number of parties working together, as they have throughout the course of negotiations to accomplish a plan that works together in the real world.”
The current deal addresses VW and Audi models made since 2009 with 2-liter engines. The company still faces the question of what to do about 82,000 cars in the U.S. with polluting 3-liter diesel engines. A Justice Department lawyer said VW is expected in August to submit a new proposal for fixing the 3-liter engines.
The EPA and California Air Resources Board must approve any fix proposed by VW to address cars emitting as much as 40 times the allowable limit of nitrogen oxide gases. Meeting the agencies’ standards has proven elusive for the carmaker.
From when the scandal broke in September and lawsuits started piling up days later, Breyer has stressed the urgency of getting the polluting cars off the road. He originally set a March deadline for the company to announce a plan.
The judge extended the deadline twice before lawyers for VW and consumers came forward with a broad agreement on settlement terms. While the timeline for executing the plan calls for Breyer to consider final approval in October, he may continue to oversee efforts by VW and the EPA to determine how to repair the cars. With or without a fix, car owners who don’t like the buyback option may be able to keep driving.
“This is definitely one of the most unusual automotive settlements,” said Adam Zimmerman, a law professor at Loyola Law School in Los Angeles who teaches complex litigation. “But there’s never really a perfect fix when someone’s hurt and you’re compensating them with money. Ultimately, finding a fix for the cars is really out of Breyer’s control.”
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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).