By Mike Spector and Sara Randazzo
Volkswagen AG is nearing a $10 billion civil settlement, the
largest in the auto industry's history, to compensate U.S. owners
of vehicles affected by the German car maker's emissions-cheating
scandal, said people familiar with the matter.
Under the proposed deal, Volkswagen would offer to buy back cars
and provide additional compensation for owners of almost 500,000
diesel-powered vehicles with two-liter engines that contain
software capable of duping government emissions tests, the people
said.
In addition, Volkswagen is expected to pay more than $4 billion
for environmental impacts and to promote so-called zero-emission
vehicles, the people said. Volkswagen faces other government
penalties in the U.S. and around the globe.
"If VW succeeds in settling the case, it will take a big step
forward but have many more ahead of it," said Erik Gordon, a
professor at University of Michigan's Ross School of Business. "The
enormity of VW's world-wide problems are hard to estimate but
already are many times what management originally thought."
Volkswagen is offering to either buy back vehicles at their
market value before the scandal emerged in September or make
affected vehicles compliant with environmental regulations. The car
maker will also provide additional cash whether owners choose to
sell or keep their cars, the people said.
Consumers could get at least $5,100 and some could receive up to
$10,000, beyond the price of the buyback or repair, one of the
people said. Cars affected include model year 2009 to 2015
Volkswagen Jettas, 2010 to 2015 Volkswagen Golfs, 2012 to 2015
Volkswagen Passats and Beetles, and 2010 to 2015 Audi A3s, all with
diesel engines.
The settlement isn't the first time a car maker has been forced
to repurchase autos. Fiat Chrysler Automobiles NV last year agreed
in certain instances to repurchase some trucks in a settlement with
U.S. car-safety regulators covering recall lapses involving
millions of vehicles.
"The consumer is finally getting their due, but it took a long
time and lot of money," said Steve Kalafer, a Volkswagen dealer in
New Jersey. He said an earlier program that offered Volkswagen
diesel-car owners $1,000 and a roadside emergency-service plan "was
deferring reality."
Mr. Kalafer said dealers are waiting for the company to
comprehensively address their woes. Volkswagen halted sales of
affected vehicles in the fall, leaving dealers with expensive
inventory.
"It has been a nightmare for the retailers," he said.
Stephanie Walkenshaw, who bought a diesel Jetta just over a year
ago, plans to sell back her car and will be watching for any
conditions attached to the payouts. The 38-year-old Denver resident
has continued to drive the Jetta, which she purchased in part
because she thought it was good for the environment. "I feel
deceived and duped," she said.
A Volkswagen spokeswoman declined to comment on Thursday.
Bloomberg and the Associated Press earlier reported some details of
the expected settlement.
The people cautioned that negotiations among Volkswagen,
plaintiffs' lawyers and government officials involved in widespread
litigation consolidated in a San Francisco federal court were
ongoing and terms of the settlement could change. U.S. Judge
Charles Breyer, who is overseeing the litigation, set a June 28
deadline for the auto maker and other parties to reach a settlement
to resolve the emissions lapses.
Elizabeth Cabraser, the lead plaintiffs' lawyer representing
U.S. consumers, said in a statement that the 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."
The U.S. Justice Department sued Volkswagen in January on behalf
of the Environmental Protection Agency, alleging the German car
giant violated federal clean-air laws by using software known as
defeat devices that allowed vehicles to pollute more on roadways
than during government tests.
The Federal Trade Commission, which enforces U.S. consumer
protection laws, also sued the auto maker in March alleging the
company falsely advertised "clean diesel" vehicles with low
emissions. Volkswagen also faces claims by consumers alleging
declining resale values and other grievances.
The auto maker also faces litigation and investigations over
similar allegations involving 85,000 diesel-powered autos with
three-liter engines.
Volkswagen has acknowledged installing the problematic software
on some 11 million vehicles world-wide. In the U.S., officials said
Volkswagen diesel-powered vehicles emitted nitrogen oxides at up to
40 times the allowable standard.
Costs of the proposed deal raise the stakes for any future
cases. Toyota Motor Corp. and General Motors Co. paid $1.2 billion
and $900 million, respectively, to settle criminal charges stemming
from earlier safety lapses.
Toyota was penalized for failing to report unintended
acceleration issues while GM's case arose from millions of older
cars with faulty ignition switches that were tied to 124 deaths in
accidents. GM overall has reached settlements with the U.S. Justice
Department, shareholders and thousands of consumers totaling more
than $2 billion. It still faces additional litigation and trials
over a faulty switch that could shut off power to air bags and
power brakes.Japanese air-bag supplier Takata Corp. has suffered
fines and faces a criminal probe in the U.S. over defective air
bags in tens of millions of vehicles that can rupture and spray
shrapnel. Takata has said it is cooperating with government
officials.
Volkswagen has set aside more than $18 billion to recall
millions of vehicles and settle legal claims, and additional
possible financial penalties still loom.
Its troubles come as other auto makers have admitted to
misstating fuel economy or been accused of emissions lapses.
Mitsubishi Motors Corp. this week forecast a $1.38 billion loss for
the fiscal year ending March 2017 after admitting it misstated
fuel-economy on vehicles in Japan.
The proposed U.S. settlement would mark a potential bookend for
Volkswagen on the scandal. Some Volkswagen shareholders earlier
this week berated executives at the company's annual shareholders
meeting in Germany over the company's response to the emissions
cheating, which U.S. environmental regulators disclosed in
September. The German auto maker has repeatedly apologized for the
scandal.
The Justice Department is separately conducting a criminal probe
of Volkswagen over the emissions cheating. The auto maker decided
against releasing initial findings of its own investigation in part
because of concerns it could hurt any credit the company might
receive from U.S. prosecutors for cooperating with the probe.
Write to Mike Spector at mike.spector@wsj.com and Sara Randazzo
at sara.randazzo@wsj.com
(END) Dow Jones Newswires
June 24, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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