Volkswagen has agreed to a $14.7bn US package affecting nearly half a million rigged cars and to help fund zero-emissions technology in the country, according to two people familiar with the matter.
The agreement, to be officially announced on Tuesday morning in California, is in three parts. The overall aim is to deal with 475,000 two-litre diesel engine cars equipped with software to cheat official emissions tests. A solution on 85,000 three-litre cars in the US that also pollute beyond accepted standards is yet to be found.
First, Volkswagen will spend $10.033bn to buy back or fix the rigged cars, in the largest auto-related consumer class settlement in history, said a person familiar with the details.
Car owners, whether they choose to sell their cars back to VW or have them fixed, will be offered a minimum of $5,100 each in compensation as well as the buyback price. The maximum is around $10,000. Drivers who leased their cars will be offered roughly half the amount, in some cases less than $2,700.
Second, VW has agreed to pay a $2.7bn environmental remediation payment into a trust operated by the Environmental Protection Agency. The money is to be paid over three years.
Third, VW has agreed to invest $2bn over 10 years into zero emission technology.
Last September VW admitted to rigging 11m cars worldwide with defeat devices that cheat official emissions tests.
Both people familiar with the matter suggested that battery charging stations could be a possible investment, though other infrastructure would also count. Volkswagen can earn money on what it builds, but it cannot be proprietary technology as the aim is to advance the technology in a way that helps others.
Volkswagen still has not come up with a fix on the cars. The EPA is still vetting proposals to ensure they do not compromise performance or mileage or durability. It was a rigorous process, and could not get done overnight, one of the people said.
The price VW will pay to buy the cars is based on their “pre-scandal” value from September 2015. VW owners will not have to make their decision until December 2018. During this time, the car’s value does not depreciate, one of the people said. The average car depreciates 1-2 per cent a month, but these would not depreciate, having been frozen in September 2015.
In April, VW set aside €16.2bn to cover the costs of the scandal worldwide, which is expected to be sufficient to cover the $14.7bn US package. One person said the carmaker was not expected to need to revise this figure upward, based on Tuesday’s settlement.
However, VW still faces civil and criminal fines in the US. The Department of Justice sued VW in January and the case will not be complete until Jones Day, the US law firm, completes its investigation, which is expected late this year.
The second person pointed out that the $10.033bn is the maximum amount to be paid to car owners. The more car owners who choose to have their cars fixed, the more VW will save.
For instance, the rigged VW cars include luxury Audis with a September 2015 value of up to $44,000. If an owner of a car accepts a $10,000 payment along with a fix, VW saves tens of thousands of dollars.
To see that VW ensures the cars are bought back or fixed, the EPA has set a deadline of June 2019, by which point a solution must have been found for 85 per cent of the vehicles. If VW fails, it will owe $85m to the EPA for every percentage point below that threshold.
The agreement is to be filed on Tuesday by the DoJ, the Plaintiffs Steering Committee and the Federal Trade Commission. A court hearing is scheduled on July 26 in which the agreement is expected to receive preliminary approval. Final approval is not expected until autumn.
The documents, one of the people said, expressly say that the agreement should not be used as precedent in other regions such as Europe, where 8.5m cars were rigged.
Emissions standards on diesel cars are less strict outside the US, and analysts do not believe VW will have to buy back cars there or offer large compensation packages.
(Published by Financial Times - June 27, 2016)