Volkswagen's U.S. diesel
emissions settlement to cost $15 billion: sources
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[June 28, 2016]
By David Shepardson
WASHINGTON (Reuters) - Volkswagen AG's
settlement with nearly 500,000 U.S. customers and government
regulators over polluting diesel vehicles is valued at more than $15
billion cash, two sources briefed on the matter said on Monday.
The settlement, to be announced on Tuesday in Washington, includes
$10.033 billion to offer buybacks to owners of about 475,000
polluting vehicles and nearly $5 billion in funds to offset excess
diesel emissions and boost investment in zero emission vehicles, the
sources said.
A separate settlement with nearly all U.S. state attorneys general
over excess diesel emissions will be announced on Tuesday and is
expected to be more than $500 million and will push the total to
over $15 billion, a separate source briefed on the matter said.
Spokeswomen for U.S. Environmental Protection Agency (EPA) and
Volkswagen (VW) declined to comment.
The settlement stems from the German automaker's admission in
September that it intentionally misled regulators by installing
secret software that allowed U.S. vehicles to emit up to 40 times
legally allowable pollution.
The deal, based on the largest ever automotive buyback offer in U.S.
history and most expensive auto industry scandal, will move VW close
to the 16.2 billion euros ($18 billion) it has set aside to cover
the costs of the scandal.
Though about $5 billion higher than previously reported, the
settlement gives firm details of costs in the United States where VW
faces the bulk of expenses for its wrongdoing, more than nine months
after the scandal broke.
"The deal looks reasonable and it will end uncertainty," said
London-based Evercore ISI analyst Arndt Ellinghorst who has a "buy"
rating on VW stock. "We expect the market to be OK with the higher
number."
VW shares jumped as much as 4.7 percent on the news and were trading
up 2.9 percent at 109.2 euros by 1002 GMT.
But criminal and civil legal action is still pending in other
countries, while European governments are demanding VW offer similar
compensation to the owners of 8.5 million rigged cars in the region,
adding to risks that the costs could climb.
Speaking on condition of anonymity, due to court-imposed gag rules,
the first sources said owners of 2.0 liter diesel VW 2009-2015 cars
would receive at least $5,100 compensation along with the estimated
value of the vehicles as of September 2015, before the scandal
erupted. Some owners will get as much as $10,000 in compensation,
the first sources said, depending on the value of the car.
The $10.033 billion is the maximum VW could pay if it had to buy
back all vehicles, but the actual amount VW will pay could be much
less if a large number of owners don't take buybacks.
Prior owners will get half of current owners, while people who
leased cars will also get compensation, said the first sources.
Owners would also receive the same compensation if they choose to
have the vehicles repaired, assuming U.S. regulators approve a fix
at a later date.
The settlement includes $2.7 billion in funds to offset excess
diesel emissions and $2 billion in VW investments in green energy
and zero emission vehicles, the first sources said. The diesel
offset fund could rise if VW has not fixed or bought back 85 percent
of the vehicles by mid-2019, the first sources said.
The $2 billion in green energy and zero emission efforts will be
spent over 10 years, the first sources said, and will include zero
emission vehicle infrastructure.
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A VW sign is seen outside a Volkswagen dealership in London, Britain
November 5, 2015. REUTERS/Suzanne Plunkett/File photo
VW still must reach agreement with regulators on whether it will offer to buy
back 85,000 larger 3.0 liter Porsche, Audi and VW cars and SUVs that emitted up
to nine times legally allowable pollution and how much it may face in civil
fines for admitting to violating the Clean Air Act.
Erik Gordon, a University of Michigan business professor, said: "VW had little
negotiating power, given the evidence. The costs of the remedies should make
automakers cautious about misleading people in ways that give prosecutors the
ability to bring criminal charges. Potential criminal charges mean you open your
wallet in the civil actions, hoping to receive leniency instead of jail time."
Reuters reported earlier the initial VW settlement would not include civil
penalties under the U.S. Clean Air Act or address about 85,000 larger 3.0 liter
Audi, Porsche and VW vehicles that emitted less pollution than 2.0 liter
vehicles. A deal covering the 3.0 liter vehicles may still be months away.
The settlement does not address lawsuits from investors or a criminal
investigation by the Justice Department.
Regulators will not immediately approve fixes for the 2.0 liter vehicles – and
may not approve fixes for all three generations of the polluting 2009-2015
vehicles, sources previously told Reuters.
Owners will have until December 2018 to decide whether to sell back vehicles and
fixes may not eliminate all excess emissions.
VW cannot resell or export the vehicles bought back unless the EPA approves a
fix, Reuters reported last week.
VW, the world's second largest automaker, has seen U.S. VW brand sales suffer in
the wake of the crisis. VW brand sales are down 13 percent in the United States
in 2016, while sales of its luxury Audi and Porsche units have risen.
U.S. District Judge Charles Breyer in San Francisco will hold a hearing on July
26 to decide on whether to grant preliminary approval to the settlements. If
granted he would hold a later hearing to give final approval. Buybacks are
likely to start no earlier than October, the first sources said.
VW had said the scandal impacted 11 million vehicles worldwide and led to the
departure of CEO Martin Winterkorn.
German prosecutors said this month they were investigating Winterkorn and a
second unidentified executive over whether they effectively manipulated markets
by delaying the release of information about the firm's emissions test cheating.
(Reporting by David Shepardson. Additional reporting by Andreas Cremer; Editing
by G Crosse, Bernard Orr and Mark Potter)
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