Log in | Subscribe | RSS feed

What’s New

VW to spend up to $14.7 billion to settle US emission violations on 2.0 L diesels

28 June 2016

In two related settlements, one with the United States and the State of California, and one with the U.S. Federal Trade Commission (FTC), Volkswagen has agreed to spend up to $14.7 billion to settle allegations of cheating emissions tests and deceiving customers. Volkswagen will offer consumers a buyback and lease termination for nearly 500,000 model year 2009-2015 2.0 liter diesel vehicles sold or leased in the U.S., and spend up to $10.03 billion to compensate consumers under the program. In addition, the companies will spend $4.7 billion to mitigate the pollution from these cars and invest in “zero emissions” vehicle technology.

The settlements partially resolve allegations by the EPA, as well as the California Attorney General’s Office and CARB under the Clean Air Act, California Health and Safety Code, and California’s Unfair Competition Laws, relating to the vehicles’ use of “defeat devices”. The settlements also resolve claims by the FTC that Volkswagen violated the FTC Act through the deceptive and unfair advertising and sale of its “clean diesel” vehicles. The settlements do not resolve pending claims for civil penalties or any claims concerning 3.0 liter diesel vehicles. Nor do they address any potential criminal liability.

The affected vehicles include 2009 through 2015 Volkswagen TDI diesel models of Jettas, Passats, Golfs and Beetles as well as the TDI Audi A3.

The provisions of the U.S./California settlement are contained in a proposed consent decree filed today in the U.S. District Court for the Northern District of California and will be subject to public comment period of 30 days. The provisions of the FTC settlement are contained in a proposed Stipulated Final Federal Court Order filed in the same court.

Settling with Consumers. The settlements require Volkswagen to offer owners of any affected vehicle the option to have the company buy back the car and to offer lessees a lease cancellation at no cost. Volkswagen may also propose an emissions modification plan to EPA and CARB, and if approved, may also offer owners and lessees the option of having their vehicles modified to substantially reduce emissions in lieu of a buyback. Under the U.S./California settlement, Volkswagen must achieve an overall recall rate of at least 85% by June 30, 2019 both federally and in California of affected 2.0 liter vehicles or pay additional sums ($85 million/1% federal shortfall and $13.5 million/1% California shortfall) into the mitigation trust fund. The FTC order requires Volkswagen to compensate consumers who elect either of these options.

Volkswagen must set aside and could spend up to $10.03 billion to pay consumers in connection with the buy back, lease termination, and emissions modification compensation program. This maximum amount assumes 100% consumer participation rate a 100% Buyback and 100% Lease Termination of Eligible Vehicles.

Buyback option: Volkswagen must offer to buy back any affected 2.0 liter vehicle at their retail value as of September 2015—just prior to the public disclosure of the emissions issue. 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. In addition, because a straight buyback will not fully compensate consumers who owe more than their car is worth due to rapid depreciation, the FTC order 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 percent of the amount a consumer would be entitled to under the buyback.

Lease Termination option: Consumers who leased the affected cars will have the option of terminating their leases (with no termination fee) or having their vehicles modified if a modification becomes available. In either case, under the FTC order, these consumers also will receive additional compensation from Volkswagen for the harm caused by VW’s deceptive advertising.

Eligible consumers will receive notice from VW after the orders are entered by the court this fall. Information will be posted at VWCourtSettlement.com and AudiCourtSettlement.com.

EPA-approved modification to vehicle emissions system: The settlements also allow Volkswagen to apply to EPA and CARB for approval of an emissions modification on the affected vehicles, and, if approved, to offer consumers the option of keeping their cars and having them modified to comply with emissions standards. Under this option in accordance with the FTC order, consumers would also receive money from Volkswagen to redress the harm caused by VW’s deceptive advertising.

Approved modifications would be subject to emission limits as well as OBD requirements. While the affected vehicles would require changes to the software to disable the defeat device, some additional hardware and software changes would also be required. Some details are outlined in Appendix B of the EPA/CARB settlement and briefly summarized below.

Pollution Mitigation. The settlement also requires Volkswagen to pay $2.7 billion to fund projects across the country that will reduce emissions of NOx where the 2.0 liter vehicles were, are or will be operated. Volkswagen will place the funds into a mitigation trust over three years, which will be administered by an independent trustee.

Eligible mitigation actions apply to local large trucks, buses, switching locomotives, ferries/tugs, shorepower for ocean going vessels, local medium trucks, airport ground support equipment, forklifts, light-duty zero emission vehicle support equipment and DERA projects. Further details are contained in Appendix D of the EPA/CARB settlement.

Zero Emissions Technology Investments. Volkswagen will also be required to invest $2 billion toward improving infrastructure, access and education to support and advance zero emission vehicles. The investments will be made over 10 years, with $1.2 billion directed toward a national EPA-approved investment plan and $800 million directed toward a California-specific investment plan that will be approved by CARB. As part of developing the national plan, Volkswagen will solicit and consider input from interested states, cities, Indian tribes and federal agencies.

Source: DOJ news release | EPA news release | EPA/CARB proposed consent decree | FTC proposed Stipulated Final Federal Court Order