VW Said to Pay Diesel Owners Up to $7,000, Fund Air Grants

  • Plan to be submitted to U.S. district court judge on June 28
  • Terms to settle lawsuits after cheating on emission tests

VW Agreement Said to Pay Diesel Owners up to $7,000

Volkswagen AG will pay owners of its polluting diesel cars as much as $7,000 each and agree to fund a program to offset air pollution, under a $10 billion settlement being negotiated for submission to a federal judge next week, said people familiar with the talks.

In addition to either fixing or buying back the affected cars, VW will provide cash payments worth between $1,000 and $7,000, depending on the vehicle’s age and other factors, to compensate consumers, the people said. All spoke on the condition they not be identified because U.S. District Judge Charles Breyer, who is supervising the settlement discussions, has imposed a gag order.

The environmental remediation program is a key priority for regulators looking to undo the damage of 482,000 diesel cars that emit as much as 40 times the permitted amounts of smog-forming nitrogen oxides. VW isn’t expected to be able to repair all of the cars affected to the satisfaction of the EPA, which may result in buybacks or extra payments to the environmental fund.

The Wolfsburg, Germany-based carmaker has admitted that since 2009 it rigged cars to pass U.S. Environmental Protection Agency and California Air Resources Board emission tests. VW, the EPA, CARB and the Justice Department, and attorneys representing affected consumers are scheduled to present a settlement agreement June 28.

‘Substantial Benefits’

“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,” Elizabeth Cabraser, lead counsel for the plaintiff’s steering committee, said in an e-mail.

The parties reached a tentative agreement in April though discussions on the details are still continuing and may change before being submitted, the people said.

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Jeannine Ginivan, a spokeswoman for Volkswagen, and Nick Conger, a spokesman for the EPA, declined to comment.

Car owners will be faced with complex calculations to figure out how much cash they might receive from Volkswagen, two of the people said, which could irritate them and further sour the carmaker’s relationship with its customers.

Buy Backs

Owners can opt to have their cars repaired, yet because the EPA and CARB haven’t approved VW’s proposed fixes, there’s no timetable for the repairs nor a guarantee there will ever be an approved fix, one of people said. Under the agreement, Volkswagen will buy back cars at their value before the scandal became public in September.

Regulators are looking at a small but popular diesel-emissions clean-up program as a model for a VW remediation fund, according to the people. The Diesel Emissions Reduction Act grant program is funded by the EPA but partially administered by states with severe diesel pollution. The so-called DERA program funded projects like retrofitting older diesel buses or scrapping and replacing fleets of diesel-powered drayage trucks at ports.

The new fund will have an administrator hired by the Justice Department, one person said. States will be allocated funds, but they’ll have to submit projects for approval based on criteria laid out in the court agreement. The fund administrator will audit projects. VW hasn’t had any input into details regarding the remediation plan, the person said.

Diesel Grants

There are plenty of potential takers for clean-diesel grants, said Ezra Finkin, policy director of the Diesel Technology Forum, a trade group based in Frederick, Maryland. In an assessment of the diesel grant program, EPA estimated there were 1.1 million pieces of older diesel equipment in use that could be retrofitted or replaced, Finkin said. That includes on-road and off-road equipment, heavy-duty trucks, locomotives and construction machines.

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The cost of the settlement will exceed $10 billion, a person familiar with the matter said. The deal is expected to include penalties for breaking U.S. clean-air laws, money to buy back vehicles, and funds to compensate consumers and to settle class-action claims. The company also faces a Federal Trade Commission action for false advertising.

It’s likely that VW won’t have a final sign-off on its plan to fix the 2-liter cars, the person said. That’s making the plan to compensate for environmental damage more important to regulators, since the diesel-powered cars exceeding pollution limits remain on the road.

Smog Assessment

The amount of money VW will pay into the fund will depend on a technical assessment by the regulators of how much excess smog-forming gases the non-compliant diesel cars emitted going back to 2009. They’ll also estimate how much pollution to expect going forward from consumers who don’t sell their cars back to VW or don’t follow up on the recall repairs.

Lawyers for car owners are due to submit the proposed deal to the San Francisco federal judge overseeing U.S. lawsuits by June 28. The settlement will include options for car owners to sell their vehicles back to Volkswagen or to terminate their leases early.

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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