Nine months after the Environmental Protection Agency and California Air Resources Board Board revealed that Volkswagen had used so-called “defeat devices” in nearly 500,000 diesel-engine vehicles in the U.S. to skirt emissions standards, the carmaker has finally reached a partial settlement package with the agencies, along with the Department of Justice and the Federal Trade Comission, to the tune of $15 billion.

Volkswagen has agreed to pay about $15 billion to begin the long process of putting the diesel scandal—which included vehicles that emitted 40 times the allowable rate of nitrogen oxide into the environment—behind it.

According to the 225-page settlement [PDF], VW will pay a maximum of $10.03 billion to cover buybacks and fixes for the affected vehicles, $2 billion to invest in green energy funds and $2.7 billion to offset diesel emissions.

The settlement, which must be approved by a judge (likely sometime in the fall), only covers about 475,000 vehicles in the U.S. that contain 2.0 liter diesel vehicles. It does not cover about 87,000 3.0 liter diesel engine vehicles, so you can expect a separate settlement to resolve cheating allegations in the those cars. 




“This is far from over,” Gina McCarthy, EPA Administrator, said during a press conference on Tuesday. “We have achieved our number one priority, we have found a solution to move forward to protect our environment.”

As previously reported, a bulk of the funds earmarked in today’s settlement—$10.03 billion—will go toward compensation for the owners of VW’s affected diesel-engine vehicles.

According to the settlement, there are “no practical engineering solutions that would, without negative impact to vehicle functions and unacceptable delay, bring the 2.0 liter vehicles into compliance with the exhaust emission standards and the on-board diagnostics requirements” that they should be certified to per the EPA and CARB.

As such, the settlement requires VW to remove from operation or modify at least 85% of the vehicles covered by the settlement.

To do so, the company will offer each eligible owner and lessee of an affected vehicle the option of a buyback and termination of the lease, or modification of the vehicle at no expense.

Vehicles eligible for the settlement are:

Volkswagen to Pay at Least $15B to Settle Federal Allegations in Dirty Diesel Scandal

Buyback Options

Under the terms, VW will provide a buyback valued at not less than the retail replacement value for the vehicle.

Consumers who choose the buyback option will receive between $12,500 and $44,000, depending on their car’s model, year, mileage, and trim of the car, as well as the region of the country where it was purchased.

As for the termination of a lease, the settlement requires VW to offer a full termination of the lease as soon as the vehicle is returned to the dealer. Any lease termination offer will include full cancellation of the remaining terms of the lease with no financial or other penalty or cost.

The buyback and lease termination offers will be available to affected vehicle owners or lessees 15 days after the settlement has been approved, and will remain open for at least two years.

Additionally, because a straight buyback will not fully compensate consumers who owe more than their car is worth due to rapid depreciation, a settlement with the Federal Trade Commission provides these consumers with an option to have their loans forgiven by Volkswagen.

Consumers who have third-party loans have the option of having Volkswagen pay off those loans, up to 130% of the amount a consumer would be entitled to under the buyback. For example, if the owner is entitled to a $20,000 buyback, VW would pay off his/her loans up to a cap of $26,000.

Any vehicles bought back by VW are required to be fixed, scraped, or recycled. The company is prohibited from shipping or moving the vehicles out of the U.S. 

Modification

Owners who choose to have VW modify their vehicles instead of selling them back to the carmaker will not incur any costs for the changes, according to the settlement.

An actual fix—or fixes—for the vehicles have yet to be ironed out. Any remedy must be approved by the EPA and CARB prior to being made available to vehicle owners.

The automaker is expected to propose fixes for the issues starting in November. If an owner chooses to have their vehicle fixed, they would also receive compensation ranging between $5,000 to $10,000 for diminished valued, per the agreement.

Under the settlement, VW must repair or buy back 85% of the 475,000 affected vehicles by 2019. If that doesn’t occur, the company will face penalties of $100 for every percentage point it falls below the 85% figure.

Also part of today’s partial agreement, VW will:

  • Establish a $2 million will be directed to investments over a 10 year period to support the increased use of technology for Zero Emissions Vehicles in California and the United States.
  • Pay $2.7 million will be paid to establish a fund for Eligible Mitigation Actions that will reduce the emissions of nitrogen oxide in any area of the U.S. were VW’s emissions-cheating vehicles were located. VW is required to make a $900 million payment into the trust account within 30 days of the settlement becomes effective.  

What's to Come

Federal regulators said on Tuesday that while the settlement begins the process of resolving VW’s use of illegal defeat devices to skirt federal emission standards, the case is far from over.

The Department of Justice said it is still working to determine if it will file criminal charges against the carmaker.

Additionally, the EPA said it would work vigorously with VW and others to create a remedy for the both 2.0 liter and 3.0 liter vehicles equipped with defeat devices. 

Consumer advocates echoed the feeling that VW’s ordeal is far from over.

“This is very promising for consumers cheated by Volkswagen,” William Wallace, a policy analyst for Consumers Union, the policy and advocacy arm of Consumer Reports, says. “We’re glad that owners and lessees of 2.0-liter vehicles would be able to choose what to do with their faulty cars, and get significant cash compensation regardless of their choice. We’ll be watching closely to make sure VW follows through on its commitments to both consumers and the environment, and that the civil and criminal penalties the government imposes on VW are high enough to deter companies from defrauding consumers like this in the future.”