Volkswagen to pay $10 billion to U.S. diesel owners

Keith Laing
Detroit News Washington Bureau

Washington — Volkswagen will reportedly pay up to $7,000 apiece to owners of its diesel cars that were rigged to cheat U.S. emission standards under a $10 billion settlement that is scheduled to be submitted to a federal judge next week.

The payouts will go to 482,000 owners of U.S. diesel vehicles on which the automaker installed software to skirt federal emission rules, according to Bloomberg News and the Associated Press, which cited unnamed sources.

Payments reportedly will range from $1,000 to $7,000, depending on the vehicle’s age and other factors. Prices for used VW diesels have fallen 19 percent since the scandal broke, according to Kelley Blue Book. And it’s expected that some cars can’t be retrofitted to meet emission standards.

Jack Nerad, executive editorial director and market analyst at Kelley Blue Book, said the settlement “is immense and will likely involve a significant number of vehicle buy-backs.”

But he said the agreement will allow Volkswagen to emerge from the emissions scandal that has “plagued it for months and put a pall over the brand’s efforts to become a more major factor in North America.”

“The dollar figure doesn’t include the harm that has been done to Volkswagen’s reputation and, most importantly, the managerial chaos the scandal caused both here in the United States and in Wolfsburg,” Nerad said in a statement. “As one of the largest of the world’s carmakers, VW has the resources to fix the cars, pay the fines and move on with its corporate life, but time will tell what effects the managerial purges and brain drain will have on the company.”

Volkswagen is expected to present the terms of settlement to a federal judge in San Francisco next week. The company declined a request from The Detroit News for comment on the reported agreement on Thursday.

Terms are subject to change, but the agreement will include funding for a grant program to offset air pollution caused by the diesel cars, Bloomberg reported.

U.S. District Judge Charles Breyer initially had ordered Volkswagen to submit a plan for repairs or compensation for the owners of the diesels by March, and, later, April. A previous plan by Volkswagen to fix 8.5 million diesels in Europe did not meet California’s more stringent standards.

The beleaguered German automaker was accused by the EPA in September 2015 of selling diesels for years with software that activated required air pollution equipment only during emissions tests. They had been marketed as “clean diesels” for the company’s Volkswagen, Audi and Porsche brands between 2008 and 2015.

Volkswagen has admitted to programming its diesel cars to trick emissions testers into believing the engines released far less pollution into the air than they actually do, in violation of the federal Clean Air Act. Regulators have said that in normal driving they emitted up to 40 times more smog-causing nitrogen oxide than the legal limit.

Rebecca Lindland, senior analyst at Kelley Blue Book, said the settlement for compensating owners “appears to have all the elements of a reasonable agreement for most parties, covering compensation for owners and for the government, providing a choice of resolutions to owners.”

Volkswagen’s reported settlement dwarfs the $900 million paid to settle criminal charges by General Motors Co. over its handling of vehicles with a dangerous ignition switch flaw that were subject to a high-profile recall in 2014. The total cost of the scandal to GM, including compensation to victims and recall costs, is more than $2 billion to date. The faulty ignition switches were linked to 124 deaths and 274 injuries by GM’s compensation fund.

Toyota similarly paid $1.2 billion under a 2014 settlement for its handling of cars that experienced unintended acceleration when their gas pedals stuck in a depressed position or became entrapped by floors mats. The problems were linked to at least 89 deaths and 57 injuries, according to the National Highway Traffic Safety Administration.

It is difficult to estimate how many drivers have been harmed by Volkswagen’s emissions scandal, but the Massachusetts Institute of Technology estimated in a 2015 study that excess pollution from the cars that were rigged to cheat federal environmental standards will contribute to 60 premature deaths in the United States.

Jessica Caldwell, director of industry analysis, said “it’s a bit difficult to make apple-to-apples comparisons with other settlements because it’s not a direct safety issue like in other automaker cases.

“Of course, $10 billion is a big hit no matter what company you are, but it’s a hit that Volkswagen can absorb,” she said. “What’s important for VW is that it’s finally addressing the issue and now it can try to move forward.”

Arthur Wheaton, an automotive industry specialist at Cornell University’s Industrial and Labor Relations School, said the fines for Volkswagen are likely worse than penalties doled out to other automakers in recent years because the EPA has the ability to levy much higher fines than the Department of Transportation and most other federal agencies.

“The fine for EPA violations are $37,500 per vehicle and that can be doubled since Volkswagen knowingly and willfully violated the rules,” Wheaton said. “So the total could have easily been over $36 billion and that money would not include 50 additional lawsuits from each U.S. attorney general for every state.”

Volkswagen owners in Michigan were still taking in the news of the settlement on Thursday. Kevin Baur, a 42-year-old from Jackson, hasn’t been overly concerned about the emissions cheating scandal and said he’s pleased with the reported settlement. He bought a 2015 VW Golf SportWagen TDI in June and never considered selling after the scandal broke.

“I wasn’t that upset, but if they throw me money I’ll be more than happy to take it,” he said. “Hopefully this is something that can help them move along.”

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Twitter: @Keith_Laing

Detroit News Staff Writer Michael Martinez contributed.