Herndon, Virginia – Volkswagen is setting aside about $15 billion to buy back diesel cars for customers and settle lawsuits from regulators – creating a $10.03 billion buyback fund and agreeing to spend about $4.7 billion to satisfy regulators.
Last year, Volkswagen officials admitted using illegal software tools to trick regulatory emissions tests by turning on some anti-pollution systems during testing but turning them off in real-world driving conditions. The results were cars that emitted up to 40x more than legally allowed. With about 500,000 VW and Audi vehicles on the road with the offending 2L diesel engine, the buybacks amount to about $20,000 per vehicle.
VW officials say they will either buy back cars, cancel leases, or fix the vehicles if it can develop an emissions system that satisfies regulators – something it has not yet been able to accomplish. The company must convince at least 85% of owners of vehicles with 2L diesel engines to turn them in, or the automaker will face additional fines.
“We take our commitment to make things right very seriously and believe these agreements are a significant step forward,” says Volkswagen AG CEO Matthias Müller. “We know that we still have a great deal of work to do to earn back the trust of the American people. We are focused on resolving the outstanding issues and building a better company that can shape the future of integrated, sustainable mobility for our customers.”
The settlements partially resolve allegations by the Environmental Protection Agency (EPA), as well as the California Attorney General’s Office and the California Air Resources Board (CARB). The settlements also resolve claims by the Federal Trade Commission that Volkswagen violated the FTC Act through the deceptive and unfair advertising and sale of its “clean diesel” vehicles. The settlements do not resolve pending claims for civil penalties or any claims concerning 3L diesel vehicles. Nor do they address any potential criminal liability.
“By duping the regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment,” says Deputy Attorney General Sally Q. Yates. “While this announcement is an important step forward, let me be clear, it is by no means the last. We will continue to follow the facts wherever they go.”
EPA Administrator Gina McCarthy adds, “Today’s settlement restores clean air protections that Volkswagen so blatantly violated, and it secures billions of dollars in investments to make our air and our auto industry even cleaner for generations of Americans to come.”
Options for vehicle owners include:
- Buyback: Volkswagen must offer to buy back any affected 2.0 liter vehicle at their retail value as of September 2015, prior to the public disclosure of the emissions issue. Consumers who choose the buyback option will receive between $12,500 and $44,000, depending on their car’s model, year, mileage, and trim of the car, as well as the region of the country where it was purchased. In addition, because a straight buyback will not fully compensate consumers who owe more than their car is worth due to rapid depreciation, the FTC order provides these consumers with an option to have their loans forgiven by Volkswagen. Consumers who have third party loans have the option of having Volkswagen pay off those loans, up to 130% of the amount a consumer would be entitled to under the buyback (e.g., if the consumer is entitled to a $20,000 buyback, VW would pay off his/her loans up to a cap of $26,000).
- EPA-approved modification to vehicle emissions system: The settlements also allow Volkswagen to apply to EPA and CARB for approval of an emissions modification on the affected vehicles, and, if approved, to offer consumers the option of keeping their cars and having them modified to comply with emissions standards. Under this option in accordance with the FTC order, consumers would also receive money from Volkswagen to redress the harm caused by VW’s deceptive advertising. Consumers who leased the affected cars will have the option of terminating their leases (with no termination fee) or having their vehicles modified if a modification becomes available. In either case, under the FTC order, these consumers also will receive additional compensation from Volkswagen for the harm caused by VW’s deceptive advertising. Consumers who sold their TDI vehicles after the VW defeat device issue became public may be eligible for partial compensation, which will be split between them and the consumers who purchased the cars from them as set forth in the FTC order.
Eligible consumers will receive notice from VW after the orders are entered by the court this fall. Consumers will be able to see if they are eligible for compensation and if so, what options are available to them, at VWCourtSettlement.com and AudiCourtSettlement.com. They will also be able to use these websites to make claims, sign up for appointments at their local Volkswagen or Audi dealers and receive updates. Consumer payments will not be available until the settlements take effect if and when approved by the court, which may be as early as October 2016.
Emissions Reduction Program: The settlement of the company’s Clean Air Act violations also requires Volkswagen to pay $2.7 billion to fund projects across the country that will reduce emissions of NOx where the 2L vehicles were, are or will be operated. Volkswagen will place the funds into a mitigation trust over three years, which will be administered by an independent trustee. Beneficiaries, which may include states, Puerto Rico, the District of Columbia, and Indian tribes, may obtain funds for designated NOx reduction projects upon application to the Trustee. Funding for the designated projects is expected to fully mitigate the NOx these 2L vehicles have and will emit in excess of EPA and California standards.
Zero Emissions Technology Investments: The Clean Air Act settlement also requires VW to invest $2 billion toward improving infrastructure, access and education to support and advance zero emission vehicles. The investments will be made over 10 years, with $1.2 billion directed toward a national EPA-approved investment plan and $800 million directed toward a California-specific investment plan that will be approved by CARB.
FTC’s Injunctive Relief: The FTC settlement includes injunctive provisions to protect consumers from deceptive claims in the future. These provisions prohibit Volkswagen from making any misrepresentations that would deceive consumers about the environmental benefits or value of its vehicles or services, and the order specifically bans VW from employing any device that could be used to cheat on emissions tests.
Volkswagen will also pay approximately $583 million to the signatories and $20 million to the National Association of Attorneys General (NAAG) for use by state attorneys general for consumer protection oversight, training and enforcement, and for the reimbursement of costs and expenses related to this matter. Participating states include California, Florida, Illinois, New York, Pennsylvania and Texas. At this point, the signatories do not include Arizona, New Jersey, New Mexico, Oklahoma, Vermont and West Virginia, which have 30 days to join in the settlement.
Sources: Volkswagen Group of America Inc., U.S. Department of Justice