Brexit—voters in the United Kingdom voting for the UK to withdraw from the European Union—and the subsequent extreme stock market volatility dominated the news at the end of last week, almost overshadowing news about Volkswagen AG. The automaker is expected to pay more than $10 billion to settle claims by nearly 500,000 owners stemming from its U.S. diesel emissions cheating scandal and to fund efforts to offset pollution.
Volkswagen has acknowledged installing so-called cheat software on some 11 million vehicles world-wide. In the U.S., officials say Volkswagen diesel-powered vehicles emitted nitrogen oxides at up to 40 times the allowable standard.
The U.S. Justice Department sued Volkswagen in January on behalf of the Environmental Protection Agency, alleging the German automaker 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 company in March alleging the company falsely advertised “clean diesel” vehicles with low emissions. Volkswagen also faces numerous lawsuits by consumers and dealers alleging declining resale values and other grievances.
The EPA, California Air Resources Board, U.S. Justice Department, Federal Trade Commission and lawyers representing owners have been working for weeks to reach the final agreements. Reuters, Bloomberg the Associated Press and the Wall Street Journal have all reported on details of the expected settlement. All have cited sources speaking on condition of anonymity, due to court-imposed gag rules.
However, what’s generally agreed on is that 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 sources say. Owners may, according to the anonymous sources cited in various articles, receive an average of $5,000 in compensation along with the estimated value of the vehicles as of September 2015, before the scandal came to light. Owners would also receive the compensation if they choose to have the vehicles repaired, assuming U.S. regulators approve a fix at a later date, various sources say.
The people in all articles also caution 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 very well change.
“The consumer is finally getting their due, but it took a long time and lot of money,” Steve Kalafer, a Volkswagen dealer in New Jersey, says in a Wall Street Journal article. Volkswagen halted sales of affected vehicles in the fall, leaving dealers with expensive, hard-to-sell inventory. Kalafer says dealers are still waiting for the company to comprehensively address their troubles.
“It has been a nightmare for the retailers,” Kalafer says.
There are two aspects I am most interested in following. The first will be to watch what happens to Volkswagen consumer confidence and loyalty moving forward.
Secondly, what happens to the auto industry moving forward? In France, government fraud investigators have raided PSA Group offices as part of broader checks into vehicle emissions. Earlier this year the same authorities raided offices of Renault SA. Japanese automaker Mitsubishi Motors also recently admitted it manipulated fuel-economy tests to mislead consumers. In the U.S., Daimler has announced it has been asked by the U.S. Department of Justice to investigate the certification process of its cars, as a consequence of U.S. class-action suits that allege some of Daimler’s cars violated emissions standards. If Volkswagen does reach a settlement soon, will it provide a clear path for the other automakers being investigated?