With Volkswagen and U.S. regulators set to announce an agreement today in U.S. District Court, San Francisco, more bits and pieces continued to filter out regarding the settlement. The information, quoting multiple sources with knowledge of the agreement, showed that the compensation fund the automaker agreed to set aside is much larger than first reported.
Yesterday, reports indicated the compensation fund would be $1 billion. However, today the size of the fund increased tenfold to $10 billion. This figure is enough to buy back 500,000 vehicles in the United States with some spare change left. Brandon Barnes, an analyst at Bloomberg Intelligence, estimated the total cost of a buyback at $9.4 billion.
When added to the $7.3 billion the automakers set aside in the third quarter to pay for Dieselgate costs, the cost of the self-inflicted scandal has risen to $17.3 billion. The figure, reports indicate, is still well under the $42 billion the automaker could face in ultimate penalties for the self-admitted diesel emissions scandal.
Ultimately, Evercore ISI, a market research firm, expected VW to pay about 30 billion euros ($33.9 billion) when all the bills are paid. Interestingly, the 30 billion figure is higher than the automaker’s net liquidity of 27.8 billion ($31.4 billion) announced at the end of last September, when the automaker admitted cheating on emissions testing.
Today’s announcement comes on the deadline set by U.S. District Judge Charles Breyer last month. The accord was supposed to have been reached in March. However, an agreement escaped them at that time, though, the group was working hard to find a settlement. The notice today was in line with a comment Judge Breyer made then that the first step to a final resolution was either to repair the vehicles affected or to get them off the road. The agreement to set aside the funding was apparently VW’s solution for Dieselgate. Dieselgate is the ongoing self-inflicted scandal that VW knowingly launched in 2006 when the automaker realized the engine it was developing, the EA 189, could not meet U.S. emissions limits.
Rather than using the original plan for the engine – urea-formaldehyde injection, a processe perfected by Mercedes-Benz – VW engineers believed their elegant engineering solution would take care of emissions issues. It did not, and they consciously decided to cheat, using VW-developed software. The software routine reset emissions systems so vehicles could pass tests. The software was developed in 1999 and remained unused until 2006. Vehicles with the cheatware were sold from 2008 to 2015. Ultimately, as many as 11 million vehicles worldwide had the scamware installed. The vehicles included copies from every VW subsidiary, Audi, Porsche, Skoda, Seat and VW.
Negotiators have been pushing hard to create a framework for today’s agreement. The talks were at the law offices of Robert Mueller, former head of the FBI, who was tapped to manage the more than 500 consumer lawsuits filed against the automaker. VW has also hired Kenneth Feinberg, an attorney with extensive experience managing compensation, to handle the compensation fund. Feinberg was involved in the recent successful conclusion of GM’s ignition recall. He has also successfully worked with the Boston One Fund, set up in the wake of the 2013 Marathon bombing as well as with victims of 9/11.
VW said in its court filing Tuesday that it expected to settle Dieselgate, so there was no need for court action this summer. It is also unclear whether the $10 billion fund will settle all civil claims against VW.
That is only one piece of Dieselgate. In addition to the civil actions, there are active ongoing criminal probes. The Justice Department, in addition to its $46 billion racketeering lawsuit against VW, also has initiated a criminal probe of Dieselgate. Germany, France, Italy, South Korea and India have also launched their criminal investigations. And, the Federal Trade Commission recently opened a probe of false advertising claims.
Interestingly, the automaker has already reached an agreement with the Eurozone countries on repairs to 8.5 million vehicles. Though the automaker tried to submit the plan to U.S regulators and the California Air Resources Board, the deal was shot down because of major differences in European and U.S. air quality standards. VW has been struggling to find an acceptable fix for the U.S. but has, so far, been unable to do so.
Automotive News provided the information for this report.