By Tom Krisher and Dee-Ann Durbin, AP Auto Writers
DETROIT (AP) — Volkswagen will spend more than $15 billion to settle consumer lawsuits and government allegations that it cheated on emissions tests in what lawyers are calling the largest auto-related class-action settlement in U.S. history.
Under the settlement revealed Tuesday by a U.S. District Court in San Francisco, VW will pay just over $10 billion to either buy back or repair about 475,000 vehicles with cheating 2-liter diesel engines. The company also will compensate owners with payments of $5,100 to $10,000, depending on the age of their vehicles.
Although the company has been working on a repair for the vehicles for months, it appears that VW may not be able to fix the cars and will have to buy them all back, according to the documents.
The German automaker also has to pay governments $2.7 billion for environmental mitigation and spend another $2 billion for research on zero-emissions vehicles.
Volkswagen also settled with 44 states, Washington, D.C. and Puerto Rico, which also sued the company, agreeing to pay about $603 million. That brings the total settlements announced Tuesday to $15.3 billion. (Note: Tennessee was one of the states. Attorney General Herbert Slatery’s news release on the settlement is at the end of this AP story. Among other things, Tennessee is eligible for $42 million in environmental mitigation money and $12.6 million for violations of state consumer protection laws )
VW is still facing billions more in fines and penalties as well as possible criminal charges.
Volkswagen has admitted that the 2-liter diesels were programmed to turn on emissions controls during government lab tests and turn them off while on the road. Lawyers are still working on settlements for another 80,000 vehicles with 3-liter diesel engines. The company got away with the scheme for seven years.
As part of the settlement, VW must offer to buy back most of the affected cars, or terminate their leases. That’s because, according to court documents filed Tuesday, there currently is no repair that can bring the cars into compliance with U.S. pollution regulations. If VW does propose a repair, it must be approved by the Environmental Protection Agency and the California Air Resources Board.
Owners who choose to have VW buy back their cars would get the clean trade-in value from before the scandal became public on Sept. 18, 2015. The average value of a VW diesel has dropped 19 percent since just before the scandal began. In August of 2015, the average was $13,196; this May it was $10,674, according to Kelley Blue Book.
If VW can come up with a repair that meets EPA and California standards, it’s likely to hurt the cars’ acceleration and fuel economy. Volkswagen marketed the cars as both more fuel efficient and better performing that those with regular gasoline engines.
The settlement still requires a judge’s approval before it can go into effect. Owners can choose to decline Volkswagen’s offer and sue the company on their own.
The company has to buy back or repair 85 percent of the vehicles or pay even more money into an environmental trust fund.
“This historic agreement holds Volkswagen accountable for its betrayal of consumer trust and requires Volkswagen to repair the environmental damage it caused,” said Elizabeth Cabraser, the lead attorney for consumers who sued the company.
Unless it can develop a suitable fix, VW may be forced to buy back all the 2-liter vehicles. But it appears from documents filed by the Justice Department and EPA that the technology might not be available to fix them. VW has been working on a fix since around the time the scandal broke.
“At the present time, there are no practical engineering solutions that would, without negative impact to vehicle functions and unacceptable delay, bring the 2.0 Liter subject vehicles into compliance with the exhaust emission standards and the on-board diagnostics requirements,” the order said.
Volkswagen says the $10 billion consumer settlement assumes that it will buy back all of the cars.
“We take our commitment to make things right very seriously and believe these agreements are a significant step forward,” Volkswagen AG CEO Matthias Mueller said in a statement.
Don Marron, a banker from Allentown, Pennsylvania, who owns a 2012 Jetta SportWagen diesel, said he’s glad Volkswagen is offering more compensation than earlier reports had suggested. But Marron wants assurance that if Volkswagen fixes his car but he doesn’t like the way it performs, the company will still buy it back. And if he keeps his car and saves Volkswagen money, he wants compensation for doing that.
“At this moment, I don’t know anything more than I did a couple of months ago,” he said.
The scandal erupted in September when U.S. regulators revealed that the German automaker had fitted many of its cars with software to fool emissions tests and had put dirty vehicles on the road. Investigators determined that the cars emitted more than 40 times the legal limit of nitrogen oxide, which can cause respiratory problems in humans. Car owners and the U.S. Department of Justice sued.
The company, which knew the EPA’s testing routine, got away with the scam for seven years before being caught by the International Council on Clean Transportation, which hired West Virginia University to test a VW in real roads conditions. The EPA has since changed its testing to include on-road tailpipe checks.
VW said in April that it has set aside $18.2 billion charge to cover the cost of the global scandal, which includes a total of 11 million vehicles worldwide.
News release from Tennessee Attorney General’s Office
Attorney General Herbert H. Slatery III, along with the Division of Consumer Affairs, today announced a settlement requiring Volkswagen to pay more than $570 million for violating state laws prohibiting unfair or deceptive trade practices by marketing, selling, and leasing diesel vehicles equipped with illegal and undisclosed “defeat device” software. This agreement is part of a series of state and federal settlements that will provide cash payments to affected consumers and require Volkswagen to buy back or modify certain VW and Audi 2.0-liter diesel vehicles. Additionally, the settlement prohibits Volkswagen from engaging in future unfair or deceptive acts and practices in connection with its dealings with consumers and regulators.
“Our primary objective was to make sure consumers were compensated, as they should be,” Attorney General Slatery said. “When a company exploits its own customers and misleads regulators the way Volkswagen did, it should be penalized. This settlement is a stiff but reasonable penalty for Volkswagen’s deception and most importantly, it is a fair result for consumers.”
Today’s coordinated settlements resolve consumer protection claims raised by a multistate coalition of State Attorneys General co-led by attorneys general in Connecticut, Massachusetts, New York, Oregon, Tennessee, and Washington, and joined by 37 other states and jurisdictions against Volkswagen AG, Audi AG, and Volkswagen Group of America, Inc., Porsche AG and Porsche Cars, North America, Inc. – collectively referred to as Volkswagen. They also resolve actions against Volkswagen brought by the United States Environmental Protection Agency (EPA) and Department of Justice (DOJ), the Federal Trade Commission (FTC), California and car owners in private class action suits.
The attorneys generals’ investigation confirmed that Volkswagen sold more than 570,000 2.0- and 3.0-liter diesel vehicles in the United States equipped with “defeat device” software intended to circumvent applicable emissions standards for certain air pollutants, and actively concealed the existence of the defeat device from regulators and the public. Volkswagen made false statements to consumers in their marketing and advertising, misrepresenting the cars as environmentally friendly or “green” and that the cars were compliant with federal and state emissions standards, when, in fact, Volkswagen knew the vehicles emitted harmful oxides of nitrogen (NOx) at rates many times higher than the law permitted.
Under the settlements, Volkswagen is required to implement a restitution and recall program for more than 475,000 owners and lessees of 2.0-liter diesel vehicles, of the model year 2009 through 2015 listed in the chart below at a maximum cost of just over $10 billion. This includes 11,448 vehicles in Tennessee.
Once the consumer program is approved by the court, affected Volkswagen owners will receive restitution payment of at least $5,100 and a choice between:
· A buy back of the vehicle (based on pre-scandal NADA value); or
· A modification to reduce NOx emissions, provided that Volkswagen can develop a modification acceptable to regulators. Owners will still be eligible to choose a buyback in the event regulators do not approve a fix. Owners who choose the modification option would also receive an Extended Emission Warranty and a Lemon Law-type remedy to protect against the possibility that the modification causes subsequent problems.
The consumer program also provides benefits and restitution for lessees (restitution and a no-penalty lease termination option) and sellers after September 18, 2015 when the emissions-cheating scandal was disclosed. Additional components of today’s settlements include:
· Environmental Mitigation Fund: Volkswagen will pay $2.7 billion into a trust to support environmental programs throughout the country to reduce emissions of NOx. This fund, also subject to court approval, is intended to mitigate the total, lifetime excess NOx emissions from the 2.0-liter diesel vehicles identified below. Under the terms of the mitigation trust, Tennessee is eligible to receive an initial allocation of $42,407,793.83 to fund mitigation projects.
· Additional Payment to the States: In addition to consumer restitution, Volkswagen will pay to the states more than $1,000 per car for repeated violations of state consumer protection laws, amounting to $570 million nationwide. This amount includes $12,592,800 paid for affected vehicles Volkswagen sold and leased in Tennessee.
· Zero Emission Vehicles: Volkswagen has committed to investing $2 billion over the next 10 years for the development of non-polluting cars, or Zero Emission Vehicles (ZEV), and supporting infrastructure.
· Preservation of Environmental Claims: Today’s settlement by state attorneys general preserves all claims under state environmental laws, and Tennessee maintains the right to seek additional penalties from Volkswagen for its violations of environmental and emissions laws and regulations.
Volkswagen will also pay $20 million to the states for their costs in investigating this matter and to establish a fund that state attorneys general can utilize for future training and initiatives, including investigations concerning emissions violations, automobile compliance, and consumer protection.
The full details of the consumer program will be available online at VWCourtSettlement.com and www.ftc.gov/VWSettlement.