VW Diesel Owners Will Benefit from Fraud Settlement

VWConsumers who were defrauded by Volkswagen won a victory as the German auto maker agreed to pay up to $14.7 billion to settle claims brought by the Justice Department, the Environmental Protection Agency (EPA), and the Federal Trade Commission (FTC). The company admitted last year that its “clean diesel” cars had been deliberately designed to cheat on air-quality tests.

In addition to requiring Volkswagen to buy back or retool affected cars, the settlement requires the company to make a $2.7 billion contribution to a government fund as compensation for environmental damage that the cars caused. A Justice Department official noted that the government cannot “suck the nitrous oxide out of the air,” but suggested that the settlement fund would be used to improve air quality by replacing aging busses and funding other infrastructure to reduce diesel emissions.

Volkswagen also agreed to devote another $2 billion over 10 years to “clean vehicle” projects. Those will include government 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 will probably need to scrap the cars it repurchases. The settlement prohibits Volkswagen from contributing to global pollution by dumping the cars in foreign markets where emissions standards are lax or nonexistent.

The VW Scandal

A Justice Department official referred to the VW scandal as ““one of the most flagrant violations of environmental and consumer laws.” The scandal arose from software that regulates the emissions systems of 2-liter diesel engines in the affected cars. When the car is operating under laboratory conditions (as it would during an emissions test), the software activates the car’s emission control devices. During highway driving, the software turns the controls off.

The cars use less fuel when the emissions control devices are off, allowing Volkswagen to tout the vehicles’ low fuel consumption. To achieve those fuel savings, however, the cars emitted more than 40 times the legal limit of nitrogen oxide. Learning from VW’s deception, the EPA has changed its testing procedures to measure “on road” tailpipe emissions.

Another 80,000 VW vehicles with 3-liter diesel engines were equipped with the same software. A separate settlement will be negotiated on behalf of owners of those vehicles.

Benefit to Consumers

The settlement will benefit the American owners of about 475,000 Volkswagen and Audi vehicles with diesel engines. The settlement covers the 2009-2014 model years. The New York Times published a list of the specific models covered by the settlement. Consumers can use their Vehicle Identification Number (VIN) to determine whether their cars are included in the settlement.

Vehicle owners will be entitled to sell affected vehicles to Volkswagen for the vehicle’s pre-scandal value. While the exact amount of compensation that affected owners will receive for their cars has not yet been calculated, the FTC estimated that settlements will range from $12,500 for an older Jetta to $44,000 for a 2014 Audi. Defrauded consumers will receive additional compensation of $5,100 to $10,000 to account for the harm caused by the deception.

Owners who would still owe money on their car loans after the buyback will be entitled to repayment of their loans instead of receiving the cash value of the car. Loan repayments are limited to 130% of the car’s value before the scandal became public.

Owners who sold their cars before September 18, 2014 will not be eligible for compensation. Owners who sold their cars after that date will not receive compensation related to the car’s value, but will be entitled to half of the additional compensation that will be paid to defrauded owners.

Owners who choose to keep their cars can insist that Volkswagen retool their emissions system. At this point, however, Volkswagen has not proposed an engineering solution that would meet regulatory standards without reducing engine performance and gas mileage. The EPA will need to approve any proposed fix before VW begins to make the repairs.

Assuming it is approved by the federal judge who is now reviewing it, the settlement will probably take effect in the fall. Settlement terms require Volkswagen to make all payments and perform all repairs before the end of 2018. Delay could result in additional contributions to the pollution “cleanup” funds.

Future Litigation Against Volkswagen

The settlement may not put an end to litigation against Volkswagen. Shareholders are suing the company for failing to inform them about a potential scandal that would reduce the company’s value. Dealerships are also suing Volkswagen for lost profits. Sales dropped sharply after the public became aware of the scandal.

Volkswagen may also face criminal charges.  The Justice Department and a number of state Attorneys General are investigating the possibility of pursuing the company to seek additional penalties for defrauding consumers.

In addition, defrauded owners are not required to accept the settlement that the government negotiated. They may instead pursue their own lawsuits. Depending on the law of the state in which they live, owners might be able to receive substantially greater compensation in the form of punitive damages if they opt to bring a separate lawsuit. On the other hand, they will take a risk by turning down the settlement in the hope of obtaining greater compensation by suing separately. Affected owners may want to seek legal advice before deciding whether to accept the settlement.


(Photo Credit: "VW" by Keith Williams is licensed under CC BY-SA 2.0.)

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