VW Said to Pay at Least $10 Billion as Diesel Deal Reached

The Automaker Will Buy Back Cars and Compensate Consumers

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Volkswagen Clean Diesel
Volkswagen Clean Diesel Credit: Volkswagen

Volkswagen has agreed to buy back cars and compensate consumers in the U.S. as part of an agreement with regulators and owners. The deal resolves civil claims by the U.S. government and lawsuits over diesel vehicles rigged to cheat pollution controls and will cost at least $10 billion, a person with direct knowledge of the matter said.

The automaker negotiated the plan for at least 480,000 affected vehicles in the U.S. with environmental regulators after a federal judge who's overseeing more than 600 lawsuits said that fixing the polluting cars or getting them off the road has to be the first step in resolving the consolidated cases.

The agreement includes a fund for remediation and has been agreed to by state and federal regulators, Volkswagen's lawyers told a federal judge in San Francisco Thursday. U.S. District Judge Charles Breyer said the plan provides substantial compensation without specifying an amount. A fix for all of the almost 600,000 affected vehicles in the U.S. hasn't been agreed to, he said.

An agreement with U.S. authorities is a milestone for Volkswagen as it seeks to emerge from the seven-month-old scandal. The German carmaker has been battling to appease regulators and regain customers' trust after admitting in September that it rigged the exhaust systems of 11 million diesel-powered cars worldwide to pass official emissions tests. The crisis led to the departure of Chief Executive Officer Martin Winterkorn and caused Volkswagen to delay releasing its 2015 earnings due to uncertainty over the costs of the scandal.

"VW is committed to winning back confidence of consumers," Robert Giuffra, a lawyer for Volkswagen, told the court.

Shares rose as the settlement neared, paring losses since the cheating became public in September to 21%.

The person familiar with the matter asked not to be identified because the discussions are private. The Justice Department's criminal investigation into the company continues, a second person said, as do other probes abroad. Germany is looking into who at the company knew of the problem and how high up the deceit went in the corporate ranks.

Volkswagen's struggle to come to terms with U.S. authorities contrasts with a relatively easy process in Europe, where about 8.5 million vehicles are affected. Less stringent regulation helped VW get initial approval in December for a low-cost fix in its home region that consists mainly of software updates and in some cases a tube that regulates air flow. There's been no offer to compensate European customers.

The figure is well below the theoretical maximum penalty the carmaker could face. The alleged civil violations could cost Volkswagen more than $42 billion. Brandon Barnes, an analyst at Bloomberg Intelligence, estimated the cost of buying back all of the vehicles in the U.S. would cost about $9.4 billion.

Volkswagen may also face financial penalties from the criminal probes. The company's total cost could reach about 30 billion euros, according to an estimate from Evercore ISI. The carmaker reported net liquidity of 27.8 billion euros at the end of September, when it last announced earnings.

Volkswagen, based in Wolfsburg, Germany, admitted last year that it had manipulated diesel engines with a "defeat device" so emission controls switched on only during pollution tests. The carmaker aims to complete a recall of most of the non-compliant cars in Europe by the end of 2016.

-Bloomberg News

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