Commentary

VW's Proposed Settlement With Dealers Said To Be $1.2 Billion

Volkswagen and its 650 U.S. dealers announced they had reached a settlement at a hearing in federal court in San Francisco yesterday without disclosing the amount. Sources told several media outlets it comes to to $1.2 billion.

That amount is for compensation “for the reduction in value of VW dealerships and additional payments for vehicles that could not be sold,” two sources briefed on the agreement tell Reuters’ David Shepardson. “VW has also agreed to continue to make certain incentive payments to dealers, they said.”

“That figure, on top of whatever Volkswagen will end up spending to buy back unsold and unfixable diesels from the dealers, would work out to an average of $1.85 million per dealer — although the amounts will vary, depending on the size of the dealership and other factors,” writes Neal E. Boudette for the New York Times.

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“The case stems from the manufacturer's 2015 admission that 11 million Volkswagen ‘clean diesel’ vehicles worldwide had software designed to get around emissions tests. American VW dealers are prohibited by U.S. regulators from selling the cars, a ban that has lasted almost a year,” reports Jacob Bogage for the Washington Post. “As a result, the dealers filed suit against VW, seeking to recover lost revenue.”

U.S. District Judge Charles Breyer, who gave the parties until the end of September to submit a final proposal, must approve the settlement outlined yesterday.

“We believe this agreement in principle with Volkswagen dealers is a very important step in our commitment to making things right for all our stakeholders in the United States,” Hinrich J. Woebcken, CEO of Volkswagen’s North American operations, said in a statement.

“The dealer settlement means VW has agreed to spend at least $16.5 billion in total in the United States to address emissions issues, but by no means is out of the woods. Volkswagen still faces billions of dollars in potential civil and potential criminal U.S. fines for violating emissions laws, as well as a potential costly buy-back of vehicles equipped with 3.0 liter diesel engines,” Reuters’ Shepardson points out.

“Volkswagen previously reached an agreement with attorneys for car owners. That deal calls for it to spend up to $10 billion buying back or repairing about 475,000 vehicles involved in the scandal and paying VW owners an additional $5,100 to $10,000 each,” Charles Fleming reminds us in the Los Angeles Times. “The settlement with car owners also includes $2.7 billion for unspecified environmental mitigation and an additional $2 billion to promote zero-emissions vehicles.”

Meanwhile, an attorney for Volkswagen told Judge Breyer that “most of Volkswagen’s diesel-powered vehicles on U.S. roads can’t be retrofitted to fully comply with air-pollution regulations, though its larger vehicles likely can,” Sara Randazzo, Aruna Viswanatha and William Boston report for the Wall Street Journal.

He also told the court that “Volkswagen is close to offering regulators a fix for the larger vehicles, which he said have better emissions controls than the about 475,000 2-liter vehicles covered by a $15 billion settlement reached in June.”

Owners of 2-liter vehicles such as Jettas and Passats “will receive compensation and have a choice between selling back their cars or accepting a repair,” according to the WSJ report. Volkswagen likely will recall the vehicles with 3-liter engines vehicles — including SUVs, Porsches and Audis, “which could increase its costs.”

Meanwhile, “with Volkswagen's sales falling, and not just since the current crisis, dealers have been hurting,” Sonari Glinton writes for NPR

“The dealers are VW's front line in this matter,” Kelley Blue Book analyst Rebecca Lindland tells Glinton in an email. “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.” 

Without a settlement, many dealers would go under.

“VW dealers have actually been one of the significantly aggrieved parties throughout all this mess, in addition to Volkswagen owners,” writes Stef Schrader for Jalopnik. “They didn’t really know that the cars were cheating on emissions, and when the company fessed up to its deception, it was the dealers that suffered as customers stayed away in droves. It didn’t help that they lost about 20% of their sales in diesel models alone, either.”

They obviously are hoping to stick around to see Volkswagen CEO Matthias Müller deliver on the four-point “Together” strategy to transform the company and establish an “innovative culture” over the next 10 years, as he outlined in a press conference June.

It will certainly be a revealing decade. And by 2026, we should all have a better idea of who’s really in the driver’s seat.

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