Volkswagen Settles Emissions Tests Cheating Allegations for $14.7 Billion

Volkswagen Chattanooga Plant

Volkswagen AG (ETR:VOW) agreed to spend $14.7 billion to settle the charges filed against it in connection with allegations of cheating emissions tests and deceiving customers on 2.0 liter diesel vehicles.

The German automaker settled two related allegations—one with the United States and State of California, and one with the Federal Trade Commission (FTC).

According to the U.S. Department of Justice, the German automaker will offer consumers a buyback and lease termination for almost 500,000 2.0 liter diesel vehicles (model year 2009-2015) that are sold or leased in the country.

The affected vehicles include Volkswagen TDI diesel models of Jetta, Passat, Golf, Beetle, and TDI Audi A3.

Under the settlement, Volkswagen agreed to spend as much as $10.03 billion to compensate the consumers. It will also spend additional $4.7 billion to reduce the pollution from those cars and invest in green vehicle technology.

Volkswagen Buyback option

The German automaker will offer to repurchase any affected 2.0 liter vehicle at retail value as of September 2015, before the disclosure of the emission scandal.

Consumers who choose the buyback will receive around $12,500 to $44,000, depending on the model year, mileage, trim of the car as well as the region of the country where it was purchased.

Additionally, the FTC also noted that consumers who owe more than their car is worth due to rapid depreciation will not receive full compensation under a straight buyback. Because of this, the agency ordered Volkswagen to give an option to consumers to have their loans forgiven.

Volkswagen will have to pay off loans of consumers to third party—up to 130% of the amount a consumer would be entitled to receive under the buyback. For example, the automaker will pay up to a cap of $26,000 if the consumer is entitled to a $20,000 buyback.

EPA-approved modification to vehicles

Under the settlement, Volkswagen is allowed to apply to the Environmental Protection Agency (EPA) and California Air Resources Board (CARB) for approval of an emissions modification on the affected vehicles to comply with the standards.

Volkswagen can offer consumers the option of keeping their cars and have it modified to comply with emissions standards if the EPA and CARB approve its application. Under this option, consumers will still receive money from the automaker to compensate the harm caused by its deceptive advertising.

Consumers who leased the affected cars will have the option of terminating their lease or have their vehicle modified it the modification becomes available. They also receive additional compensation from the company for the harm caused by its deceptive advertising.

Consumers who sold their vehicles after the emissions scandal became public may be eligible for partial compensation—to be split with the persons who purchased the cars.

In a statement, Deputy Attorney General Sally Q. Yates, said, “This partial settlement marks a significant first step towards holding Volkswagen accountable for what was a breach of its legal duties and a breach of the public’s trust.  And 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.”