US judge approves US$14.7 billion deal in VW diesel scandal

The logos of German carmaker Volkswagen is seen at a VW dealership in the Queens borough of New York on Sept 21, 2015.
The logos of German carmaker Volkswagen is seen at a VW dealership in the Queens borough of New York on Sept 21, 2015.PHOTO: REUTERS

WASHINGTON (Reuters) - A US federal judge on Tuesday (Oct 25) approved Volkswagen AG's record US$14.7 billion (S$20.4 billion) settlement with regulators and owners of 475,000 polluting diesel vehicles, and the German automaker said it would begin buying back the cars in mid-November.

It represented one of the biggest corporate settlements of any kind.

The action by US District Judge Charles Breyer in San Francisco marked a pivotal moment for VW as it aims to move past a scandal that has engulfed the company since it admitted in September 2015 to installing secret software in diesel cars to cheat exhaust emissions tests and make them appear cleaner than they really were.

Hinrich Woebcken, president and CEO of Volkswagen Group of America Inc, called final approval of a settlement first announced in June "an important milestone in our journey to making things right in the United States," and pledged to carry out the terms "as seamlessly as possible."

Breyer turned away objections from car owners who thought the settlement did not provide enough money, saying it"adequately and fairly compensates" them.

In addition to the pre-scandal "trade in" value of the vehicle, owners will receive US$5,100 to US$10,000 in additional compensation.

"Given the risks of prolonged litigation, the immediate settlement of this matter is far preferable," Breyer wrote.

The settlement was reached with the US Justice Department, Federal Trade Commission, the state of California and vehicle owners who had filed a class action lawsuit against the world's No. 2 automaker. VW has admitted to misleading regulators and still faces an ongoing criminal investigation.

Volkswagen agreed to spend up to US$10.033 billion on the buybacks and owner compensation and US$4.7 billion on programmes to offset excess emissions and boost clean-vehicle projects.

VW may also be allowed to repair vehicles if regulators approve fixes. The affected vehicles emit up to 40 times legally allowable pollution levels.

It represented the largest civil settlement worldwide ever reached with an automaker accused of misconduct.

While huge, the approved deal was still smaller than the US$246 billion settlement reached by cigarette makers with 46 US states in 1998 and the US$53 billion by BP to address costs and penalties arising from the 2010 Gulf of Mexico oil spill.

In total, Volkswagen has agreed to date to spend up to $16.5 billion in connection with the scandal, including payments to dealers, states and attorneys for owners. The scandal rattled VW's global business, harmed its reputation and prompted the ouster of its CEO.

The settlement covers 2.0-liter polluting diesel Beetle, Golf, Jetta, Passat and Audi A3 cars from the 2009 through 2015 model years. Up to 490,000 people will take part in the settlement because some vehicles had multiple owners.

Volkswagen spokeswoman Jeannine Ginivan said the automaker expects to begin buying back vehicles in mid-November. VW has hired 900 people, including one to be stationed at each dealership, to handle buybacks.


VW still faces billions more in costs to address 85,000 polluting 3.0 liter vehicles and Justice Department fines for violating clean air laws. It also faces lawsuits from at least 16 U.S. states for additional claims that could hike the company's overall costs.

Last month, a Volkswagen engineer pleaded guilty to helping the company evade US emission standards. His lawyer said he would cooperate with federal authorities in their criminal probe.

In 2013, a non-profit group commissioned researchers at West Virginia University to test diesel car emissions, and found excess emissions in two VW diesels. After the U.S. Environmental Protection Agency and California spent more than a year trying to understand the cause, VW admitted last year it secretly installed software to turn off emissions equipment in real-world driving. "Today is a landmark day, when this innovative settlement can be put into action, investing billions of dollars into public health protections to remedy these serious violations,"Cynthia Giles, the EPA's assistant administrator, said.

VW will provide $2 billion over 10 years to fund programs to promote construction of electric vehicle charging infrastructure, development of zero-emission ride-sharing fleets and other efforts to boost sales of cars that do not burn petroleum.

Volkswagen has been in intensive talks over how much compensation it may offer owners of the larger 3.0 liter diesel Porsche, Audi and Volkswagen vehicles that emit up to nine times legally allowable emissions and whether it will offer buybacks for some of the polluting SUVs but no final agreement has been reached. Volkswagen faces a Nov. 3 court hearing to update the court on those vehicles' status.

Volkswagen agreed to make up to US$1.21 billion in payments to 652 US VW brand dealers and US$600 million to 44 US states to address some state claims.

Nearly 340,000 owners have registered to take part in the settlement. About 3,500 owners have opted out. Volkswagen must fix or buy back 85 per cent of the 475,000 vehicles under the agreement by June 2019 or face additional costs.