Volkswagen Emissions Scandal
Volkwagen's $14.7 Billion Settlement Clears a Hurdle Getty Images

Volkwagen's $14.7 Billion Settlement Clears a Hurdle

The plan for buybacks and a possible fix covers car owners, the U.S. government and 44 states and will cost the company about $15.3 billion if the agreements are fully adopted.

Volkswagen AG’s settlements to get 482,000 diesel-cheating cars off U.S. roads won a preliminary go-ahead from a federal judge, clearing a path through the biggest obstacle to recovery from the scandal for Germany’s largest automaker.

The plan for buybacks and a possible fix covers car owners, the U.S. government and 44 states and will cost the company about $15.3 billion if the agreements are fully adopted. That includes VW’s $603 million accord with the states that isn’t part of the settlement before U.S. District Court Judge Charles Breyer in San Francisco.

"As it appears in your presentation today, as it appeared when you filed your documents, that an enormous effort has been devoted to achieving a series of goals,” Breyer said Tuesday in court, where he set a final approval hearing for Oct. 18. “I think from what I’ve seen, those goals have been achieved, at least preliminarily.”

Tuesday’s ruling advances Volkswagen’s push to resolve a flood of U.S. lawsuits springing from the diesel-cheating scandal. Preliminary approval of the agreement addressing VW and Audi models made since 2009 with 2.0-liter engines still leaves the automaker without a settlement for 82,000 3.0-liter diesel engines while also facing additional state lawsuits by attorneys general in New York, Massachusetts and Maryland that could add billions of dollars to the carmakers’ tab.

The pact eats up almost all of the 16.2 billion euros ($17.8 billion) the company had set aside to cover the cost of the scandal worldwide. In addition to investor class actions in the U.S. and lawsuits in Germany and South Korea, the company faces criminal probes in all three countries. The German carmaker 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.

“The parties believe that the proposed settlement program will provide a fair, reasonable and adequate resolution for affected Volkswagen and Audi customers,” VW said in a statement.

The settlement before Breyer includes $10 billion for buybacks, as well as $4.7billion in government penalties and remediation. With or without a fix, car owners who don’t like the buyback option may be able to keep driving the polluting cars in some states.

Drivers who participate in the deal will get at least $5,100 each as part of a buyback program that will begin in October and run through June 30, 2019, the deadline for the company to get 85% of cars recalled. If it fails to reach that benchmark, it will have to pay $85 million more into an environmental mitigation trust for each percentage point of the shortfall. It will also have to pay an additional $13.5 million into the trust for each percentage point it falls below the target in California.

Car owners not satisfied with the settlement now can file objections with the court.

Elizabeth Cabraser, lead lawyer for the consumers, told the judge Tuesday “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.”

Nitrogen Oxide

The carmaker has yet to come up with a fix for the cars emitting up to 40 times the allowable limit of nitrogen oxide gases. The U.S. Environmental Protection Agency and California Air Resources Board must approve any fix proposed by VW. So, far none of the fixes have met agencies’ standards.

A Justice Department lawyer told the judge Tuesday that VW is expected in August to submit a new proposal for fixing the 3-liter engines.

VW is hiring 250 to 300 people to carry out the settlement requirements, Sharon Nelles, a lawyer for the company, told Breyer. VW will set up a hotline that will be available seven days a week, she said.

VW shares closed up 2.5% at 124.75 euros in Frankfurt trading, shaving the stock’s decline since the the emissions-cheating was disclosed on Sept. 18 to 23%.

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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