Volkswagen AG agreed to pay 652 auto dealerships for their losses from the diesel-cheating scheme that’s affected more than a half million cars in the U.S.
The carmaker will buy back unfixable used vehicles under the same terms as a buy-back plan for consumers and independent dealers, lawyers for the dealerships said in a statement without disclosing the dollar value of the tentative settlement. Volkswagen said in a separate statement that it agreed to make cash payments and provide additional benefits to the dealers to resolve their claims.
Almost a year after VW’s rigging of diesel-powered vehicles to cheat emissions tests was made public, it still doesn’t have an approved fix for any of the 562,000 cars still polluting U.S. roads.
VW reached a $14.7 billion agreement with car owners and U.S. and California regulators that calls for buying back or fixing 480,000 Volkswagens with 2.0-liter engines. The company is also on the hook for $603 million it agreed to pay 44 states, and it faces more state government claims and investor class actions in the U.S., lawsuits in Germany and South Korea and possible criminal penalties in all three countries.
U.S. District Judge Charles Breyer, who last month gave preliminary approval to the carmaker’s settlement covering the 2-liter models, pressed on Thursday for a solution for vehicles with 3.0-liter engines. Those models include the Volkswagen Touareg, Porsche Cayenne and Audi Q5.
Weeks after Volkswagen admitted to rigging the smaller diesel engines, U.S. regulators alleged the 3-liter engines also contained a so-called defeat device. VW, which initially rejected the allegations, submitted a recall plan for them in February.
Breyer ordered the company to file a plan for fixing the 3-liter engines and proof that it works to U.S. regulators by Oct. 24 and report back to him on Nov. 3.
“We have a pretty good idea how it’s going to end, but not sure how it will get there,” Breyer said in San Francisco federal court, referring to the goal of getting the cars off the road.
Lawyers for the dealerships said they expect to submit a proposed agreement in a few weeks for Breyer’s approval.
Dealers ‘ Blindsided’
“These 652 mostly small business owners were blindsided by the diesel emissions scandal and have seen the value of their businesses plummet,” lawyer Steve Berman said in a statement.
Auto dealers and resellers sued VW in class actions alleging fraud and false advertising. Volkswagen was also sued by a few franchise dealerships this year who accused the carmaker of fraud for installing the pollution-control cheating devices in diesel vehicles and sticking them with continuing losses by failing to fix the problem for months.
Dealers are angry because they invested heavily in new, large stores in hopes of seeing the brand sell 800,000 vehicles a year, the goal set by former Volkswagen Chief Executive Officer Martin Winterkorn. Volkswagen’s namesake brand sold 349,440 cars and light trucks in the U.S. last year.
VW brand’s sales fell almost 14 percent this year through July while industrywide deliveries rose 1.3 percent, according to researcher Autodata Corp. VW’s share of the market dropped to 1.7 percent from 2.1 percent a year earlier, Autodata said.
In addition to a settlement, Volkswagen dealers got a commitment from VW that it will lower prices to help them move more vehicles and that it will give them more new models to sell, said Alan Brown, a partner in a Volkswagen dealership in Lewisville, Texas, and chairman of VW’s U.S. dealer council.
“Not only will the dealers be satisfied with the settlement, we are getting the product we’ve been asking for,” Brown said in a phone interview. “Volkswagen is looking at this with a volume mindset.”
Brown wouldn’t discuss financial terms of the settlement, but he said he’s certain that it’s good enough for them to accept. Going forward, the new models and pricing strategy should help dealers grow sales and make a return on their investment, he said.
“The dealers are VW’s front line in this matter, so getting them compensated is critical,” Rebecca Lindland, a senior analyst for Kelley Blue Book, said in an e-mailed statement. “Not only do they represent the company to the owners, they’re also impacted financially since they’re hamstrung on what products they can sell.”
Since the U.S. Environmental Protection Agency has yet to approve any of VW’s proposed remedies for the cars, it could be years before any of the vehicles are taken off U.S. roads, a possibility that may increase fines and penalties against VW. The company has earmarked 18 billion euros ($20.3 billion) to cover the costs of the scandal. Most of the 11 million cars equipped with the defeat devices were sold in Europe.
Volkswagen’s American depospitary receipts fell 1.4 percent to $28.64 at 2:02 p.m. in New York.
As Volkswagen attempts to put its scandal in the trunk, Robert Bosch GmbH, VW’s main supplier of software that manages diesel engines, is fighting at least some of the claims that it shares blame for the devices used to cheat emissions tests. After plaintiffs filed an amended complaint on Aug. 18 accusing Bosch of playing a key role in the development of the technology, Bosch denied claims that its employees were part of the conspiracy.
Bosch will defend itself against the “wild and unfounded” allegations, the German component manufacturer said in a filing in the litigation consolidated before Breyer. Bosch, a defendant in some of those lawsuits, isn’t part of VW’s U.S. settlement.
The U.S. case is In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices and Products Liability Litigation, MDL 2672, U.S. District Court, Northern District of California (San Francisco).