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VW Judge Approves $14.7 Billion Diesel-Cheating Settlement

Oct. 25, 2016
Volkswagen’s payout for settlements is among the largest in corporate history, exceeded by the $246 billion agreement between the tobacco industry and U.S. states in 1998 and the $38 billion BP Plc has spent so far over the 2010 oil spill in the Gulf of Mexico.

Volkswagen AG and drivers suing the company in the U.S. over its diesel-cheating scandal won final approval of their $14.7 billion settlement to resolve what’s likely to be the largest portion of VW’s civil liability worldwide.

The accord requires VW to buy back cars with 2.0-liter diesel engines armed with so-called defeat devices used to beat emissions tests. Under the deal VW reached in June with consumers and regulators including the EPA and Federal Trade Commission, car owners will be offered $5,100 to $10,000 each in compensation along with the option of a buyback or a fix.

The automaker has earmarked $19.5 billion to cover costs stemming from the scandal. With Tuesday’s approval by U.S. District Judge Charles Breyer in San Francisco, VW has committed to almost $16.6 billion in settlements, including $1.2 billion for U.S. franchise dealers and $603 million to U.S. states over violations of consumer protection laws.

Breyer set aside objections to the agreement, noting that few VW owners complained “and their substance does not call into doubt the settlement’s fairness.’’ Breyer called the settlement fair, reasonable and adequate and it accomplishes the primary goal of getting the polluting cars off the road.

‘There is no just reason for delay,” Breyer said in the order, which allows the buybacks to begin immediately.

Volkswagen’s payout for settlements is among the largest in corporate history, exceeded by the $246 billion agreement between the tobacco industry and U.S. states in 1998 and the $38 billion BP Plc has spent so far over the 2010 oil spill in the Gulf of Mexico to resolve government probes as well as claims for private property and economic losses.

Bleeding Stopped

“VW got itself in a lot of trouble on both sides of the Atlantic, basically lying to a host of governmental regulators, its ultimate customers and its many dealers in between,” said  Anthony Sabino, a law professor at St. John’s University in New York and an expert on complex litigation. “They’re not getting off cheap, but they’re stopping the bleeding.”

The president of VW’s U.S. unit called the settlement “an important milestone in our journey to making things right.” The carmaker is committed to carrying out the program as seamlessly as possible for customers, Hinrich J. Woebcken said.

While VW has resolved much of its legal exposure in just over a year since the emissions cheating was revealed, the company still faces a potential trial with owners of 3.0-liter diesel cars in the U.S., shareholder claims, environmental lawsuits by multiple states and criminal investigations by the Justice Department and in Europe.

“Volkswagen remains focused on resolving other outstanding issues in the United States and continues to work towards an agreed resolution for customers with affected 3.0L TDI V6 diesel engines,” Woebcken said.

The carmaker agreed in the U.S. settlement to devote as much as $10 billion to buy back affected models and compensate drivers. It will also pay $2.7 billion to federal and California regulators to fund pollution-reduction projects, and contribute $2 billion toward investment in clean technology.

85% Goal

The settlement with the U.S. government requires VW to get 85% of the cars recalled by June 30, 2019. If it fails to do that, it will have to pay $85 million more into the 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 85% target in California.

VW owners can continue to drive their vehicles for now, even if they wouldn’t pass state emissions testing. Individual states may require approved emissions fixes on these vehicles in the future. Owners who choose the buyback option will receive their cars’ trade-in value as of last September, just before VW admitted to the emissions cheating, plus the compensation payments.

By Kartikay Mehrotra and Margaret Cronin

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