VW Will Pay—Dearly—for Diesel Scandal in U.S.

By: Bridget Clerkin April 22, 2016
VW will begin offering fixes or refunds on its diesel models.
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They say that cheaters never prosper, and now Volkswagen is learning the truth of that old adage the hard way.

Nearly half a million Americans who bought one of the auto giant’s law-skirting diesel vehicles will be offered a repair or refund by the company for their troubles, as well as “substantial compensation,” according to reports.

The massive financial concession was announced by Volkswagen earlier this week from the San Francisco courtroom where VW representatives have been quietly negotiating the deal since the Department of Justice lodged a civil suit against the carmaker in January.

While some aspects of the settlement remain undisclosed—such as how much money each Volkswagen owner will get from the company on top of repair or buyback costs—what’s certain is that VW will ultimately pay billions for their atonement efforts.

Along with the individual repurchases or refurbishments, the company pledged to donate to several environmental and clean energy funds. The final financial figures are expected to be announced in June, according to Judge Charles Breyer, who’s presiding over the case.

And while the agreement covers those who leased the cars in question—allowing them to end their contracts penalty-free—it doesn’t address how the company will compensate the nearly 90,000 owners of similarly affected 3-liter diesel engine vehicles. 

Breyer said he hoped that second settlement would come “expeditiously.”

Volkswagen’s wronged U.S. customers seem first in line for recompensing since the company admitted last September to installing technology in some models that would allow them to “cheat” on emissions tests. But the car maker is also staring down the twin-barrels of hefty government fines connected to the suit and potential criminal charges stemming from an ongoing government investigation into the scandal.

The vehicle pricing group Kelley Blue Book estimated that the cost of repurchasing every affected car in America at $7 billion, and the maximum government fine for violating the Clean Air Act could reach as high as $18 billion—although many legal experts expect a much lower figure to ultimately be reached.

On top of its American troubles, Volkswagen also has to deal with nearly 10 million of the affected cars that it sold in Europe—and official investigations launched against VW in Britain, France, and Germany—although it is expected to get away with much lesser fines there, as air-quality regulations and consumer-protection laws are not as robust as in the U.S.

All told, the financial damage to the company could reach up to $43.1 billion worldwide, according to an analysis by the investment bank UBS.

Still, the auto giant has reportedly set aside just $7.6 billion to deal with the globe-spanning issue, not including the $500 in cash and $500 in Volkswagen store credit it offered to VW owners last fall.

In the wake of its financial troubles, the company has delayed its earning reports for the last two quarters, which has compounded its monetary problems by dampening its ability to raise money on debt markets.The carmaker is set to pay billions in refunds, repairs, and compensation, as it continues to face the consequences of its diesel scandal.

Volkswagen’s troubles began in September 2015 when it was revealed that it had installed a “defeat device” in the software of many diesel engine models that would allow the cars to “cheat” on emissions tests by temporarily running a cleaner system. On the road, however, the cars reportedly produced up to 40 times the amount of nitrogen oxides allowed by the Environmental Protection Agency.

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