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VW to pay dealers for losses from emission scandal

Keith Laing
Detroit News Washington Bureau

Washington – Volkswagen has agreed to compensate dealers who have been prohibited from selling diesel cars that were rigged to cheat U.S. emission standards.

Volkswagen said Tuesday after a court hearing in San Francisco that it has reached an agreement in principle “to make cash payments and provide additional benefits to the dealers to resolve alleged past, current and future claims of losses in franchise value.”

The beleaguered German automaker said the amount of the payments will not be determined until details of the agreement are finalized in September. A lawyer for the owner of three dealerships in Illinois who sued over the emissions scandal said the payouts would be made over an 18-month period.

Hinrich Woebcken, CEO of Volkswagen’s North American Region, said the agreement with U.S. dealers “is a very important step in our commitment to making things right for all our stakeholders in the United States.

“Our dealers are our partners and we value their ongoing loyalty and passion for the Volkswagen brand,” Woebcken said. “This agreement, when finalized, will strengthen the foundation for our future together and further emphasize our commitment both to our partners and the U.S. market.”

Volkswagen has admitted to rigging 475,000 of its 2-liter diesel cars to trick emissions testers into believing the engines released far less pollution 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.

The polluting cars had been marketed as “clean diesels” for the company’s Volkswagen, Audi and Porsche brands between 2009 and 2015.

Volkswagen was sued in April 2016 by the owner of the three Illinois dealerships. The dealership owner’s suit argued that the company “intentionally defrauded dealers by installing so-called ‘defeat devices’ in its diesel cars, and separately carried out a systematic, illegal pricing and allocation scheme that favored some dealers over others and illegally channeled financing business to VW affiliate, Volkswagen Credit, Inc.”

Steve Berman, a lawyer for the dealer, said Volkswagen is making the right move by compensating dealers for their losses, as well as drivers.

Volkswagen has sold nearly 28,000 fewer cars in the U.S. in the first six months of 2016 than it did in the same period last year, which was just before its emission cheating was first reported. The company’s has reported 177,772 year-to-date sales for 2016, compared to 205,742 for the first six months of 2015, which is a nearly 14 percent drop.

The automaker previously agreed to pay $14.7 billion to settle consumer lawsuits and government allegations related to its admission that it rigged hundreds of thousands of cars to cheat U.S. emission standards.

The earlier agreement calls for the German automaker to pay more than $10 billion to either buy back or repair about 475,000 2-liter diesel vehicles that were sold between 2009 and 2015 and were built with devices to trick emissions testers.

Rebecca Lindland, senior analyst for Kelley Blue Book, said it is important for Volkswagen to keep their U.S. dealers happy.

“The dealers are VW’s front line in this matter, so getting them compensated is critical,” she said. “Not only do they represent the company to the owners, they’re also impacted financially since they’re hamstrung on what products they can sell.”

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Twitter: @Keith_Laing