What's most interesting is that VW still hasn't told the regulators how or if it can make these noncompliant diesel vehicles meet emissions standards. The EPA press release announcing the $15 billion settlement says that "Volkswagen may also propose an emissions modification plan to EPA and [the California Air Resources Board], 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." In other words, whatever magic VW engineers are working on to keep affected diesel vehicles on the road has not yet been proven.
The deal announced today is actually two deals in one. One was with the US and the state of California and the other was with the US Federal Trade Commission. VW doesn't have to buy back or fix every dirty diesel in the US. The settlement says that "at least 85% of affected 2.0-liter vehicles under these programs" have to be taken care of, or else VW will be on the hook for more money to the pollution mitigation fund. The "affected" vehicles include 2009–2015 TDIs with the 2.0-liter engine. A complete list is in the VW press release below.
VW is not out of the woods yet. Today's settlement does not touch any claims about VW's 3.0-liter diesels, any "pending claims for civil penalties" or "any potential criminal liability." To say nothing about potential fines and lawsuits against VW in other countries.
There are lots more details in the press releases below.
Settlements Require VW to Spend up to $10 Billion to Buyback, Terminate Leases, or Modify Affected 2.0 Liter Vehicles and Compensate Consumers, and Spend $4.7 Billion to Mitigate Pollution and Make Investments that Support Zero-Emission Vehicle Technology
WASHINGTON – In two related settlements, one with the United States and the State of California, and one with the U.S. Federal Trade Commission (FTC), German automaker Volkswagen AG and related entities have 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 green vehicle technology.
The settlements partially resolve allegations by the Environmental Protection Agency (EPA), as well as the California Attorney General's Office and the California Air Resources Board (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" to cheat emissions tests. 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.
"Today's settlement restores clean air protections that Volkswagen so blatantly violated," said EPA Administrator Gina McCarthy. "And it secures billions of dollars in investments to make our air and our auto industry even cleaner for generations of Americans to come. This agreement shows that EPA is committed to upholding standards to protect public health, enforce the law, and to find innovative ways to protect clean air."
"By duping the regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our atmosphere," said Deputy Attorney General Sally Q. Yates. "This partial settlement marks a significant first step towards holding Volkswagen accountable for what was a breach of its legal duties and a breach of the public's trust. And while this announcement is an important step forward, let me be clear, it is by no means the last. We will continue to follow the facts wherever they go."
"Today's announcement shows the high cost of violating our consumer protection and environmental laws," said FTC Chairwoman Edith Ramirez. "Just as importantly, consumers who were cheated by Volkswagen's deceptive advertising campaign will be able to get full and fair compensation, not only for the lost or diminished value of their car but also for the other harms that VW caused them."
According to the civil complaint against Volkswagen filed by the Justice Department on behalf of EPA on January 4, 2016, Volkswagen allegedly equipped its 2.0 liter diesel vehicles with illegal software that detects when the car is being tested for compliance with EPA or California emissions standards and turns on full emissions controls only during that testing process. During normal driving conditions, the software renders certain emission control systems inoperative, greatly increasing emissions. This is known as a "defeat device." Use of the defeat device results in cars that meet emissions standards in the laboratory, but emit harmful NOx at levels up to 40 times EPA-compliant levels during normal on-road driving conditions. The Clean Air Act requires manufacturers to certify to EPA that vehicles will meet federal emission standards. Vehicles with defeat devices cannot be certified.
The FTC sued Volkswagen in March, charging that the company deceived consumers with the advertising campaign it used to promote its supposedly "clean diesel" VWs and Audis, which falsely claimed that the cars were low-emission, environmentally friendly, met emissions standards and would maintain a high resale value.
The settlements use the authorities of both the EPA and the FTC as part of a coordinated plan that gets the high-polluting VW diesels off the road, makes the environment whole, and compensates 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% of affected 2.0 liter vehicles under these programs or pay additional sums 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. The program has different potential options and provisions for affected Volkswagen diesel owners depending on their circumstances:
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 (e.g., if the consumer is entitled to a $20,000 buyback, VW would pay off his/her loans up to a cap of $26,000).
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.
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. Consumers who sold their TDI vehicles after the VW defeat device issue became public may be eligible for partial compensation, which will be split between them and the consumers who purchased the cars from them as set forth in the FTC order.
Eligible consumers will receive notice from VW after the orders are entered by the court this fall. Consumers will be able to see if they are eligible for compensation and if so, what options are available to them, at VWCourtSettlement.com and AudiCourtSettlement.com. They will also be able to use these websites to make claims, sign up for appointments at their local Volkswagen or Audi dealers and receive updates. Consumer payments will not be available until the settlements take effect if and when approved by the court, which may be as early as October 2016.
Emissions Reduction Program: The settlement of the company's Clean Air Act violations 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. Beneficiaries, which may include states, Puerto Rico, the District of Columbia, and Indian tribes, may obtain funds for designated NOx reduction projects upon application to the Trustee. Funding for the designated projects is expected to fully mitigate the NOx these 2.0 liter vehicles have and will emit in excess of EPA and California standards.
The emissions reduction program will help reduce NOx pollution that contributes to the formation of harmful smog and soot, exposure to which is linked to a number of respiratory- and cardiovascular-related health effects as well as premature death. Children, older adults, people who are active outdoors (including outdoor workers), and people with heart or lung disease are particularly at risk for health effects related to smog or soot exposure. NO2 formed by NOx emissions can aggravate respiratory diseases, particularly asthma, and may also contribute to asthma development in children.
Zero Emissions Technology Investments: The Clean Air Act settlement also requires VW 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. This investment is intended to address the adverse environmental impacts from consumers' purchases of the 2.0 liter vehicles, which the governments contend were purchased under the mistaken belief that they were lower emitting vehicles.
FTC's Injunctive Relief: The FTC settlement includes injunctive provisions to protect consumers from deceptive claims in the future. These provisions prohibit Volkswagen from making any misrepresentations that would deceive consumers about the environmental benefits or value of its vehicles or services, and the order specifically bans VW from employing any device that could be used to cheat on emissions tests.
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, as part of the ongoing multi-district litigation, and will be subject to public comment period of 30 days, which will be announced in the Federal Register in the coming days. The provisions of the FTC settlement are contained in a proposed Stipulated Final Federal Court Order filed today in the same court.
To view the consent decree, visit: www.justice.gov/enrd/consent-decrees
For more information, visit: https://www.epa.gov/enforcement/volkswagen-clean-air-act-partial-settlement
VOLKSWAGEN REACHES SETTLEMENT AGREEMENTS WITH U.S. FEDERAL REGULATORS, PRIVATE PLAINTIFFS AND 44 U.S. STATES ON TDI DIESEL ENGINE VEHICLES
Jun 28, 2016
Proposed settlement program includes vehicle buybacks and lease terminations, emissions modifications (if approved) and cash payments to affected customers for approximately 475,000 eligible 2.0L TDI vehicles
Volkswagen agrees to $2.7 billion environmental remediation fund and to invest $2.0 billion in initiatives to promote the use of zero emissions vehicles in the U.S.
Separate resolution with U.S. states settles consumer protection claims
Herndon, Va. /Wolfsburg, Germany (June 28, 2016) – Volkswagen AG announced today that it has reached settlement agreements with the United States Department of Justice (DOJ) and the State of California; the U.S. Federal Trade Commission (FTC); and private plaintiffs represented by the Plaintiffs' Steering Committee (PSC) to resolve civil claims regarding eligible Volkswagen and Audi 2.0L TDI diesel engine vehicles in the United States. Of approximately 499,000 2.0L TDL vehicles that were produced for sale in the United States, approximately 460,000 Volkswagen and 15,000 Audi vehicles are currently in use and eligible for buybacks and lease terminations or emissions modifications, if approved by regulators. Volkswagen will establish a maximum funding pool for the 2.0L TDI settlement program of $10.033 billion. That amount assumes 100% participation and that 100% of eligible customers choose a buyback or lease termination.
The agreements covering the proposed 2.0L TDI settlement program are subject to the approval of Judge Charles R. Breyer of the United States District Court for the Northern District of California, who presides over the federal Multi-District Litigation (MDL) proceedings related to the diesel matter.
Volkswagen also announced that it has agreed with the attorneys general of 44 U.S. states, the District of Columbia and Puerto Rico to resolve existing and potential state consumer protection claims related to the diesel matter for a total settlement amount of approximately $603 million.
"We take our commitment to make things right very seriously and believe these agreements are a significant step forward," said Matthias Müller, Chief Executive Officer of Volkswagen AG. "We appreciate the constructive engagement of all the parties, and are very grateful to our customers for their continued patience as the settlement approval process moves ahead. We know that we still have a great deal of work to do to earn back the trust of the American people. We are focused on resolving the outstanding issues and building a better company that can shape the future of integrated, sustainable mobility for our customers."
Three agreements have been submitted to the Court for its approval with respect to the proposed 2.0L TDI settlement program: (1) a Consent Decree filed with the Court by the DOJ on behalf of the Environmental Protection Agency (EPA) and by the State of California by and through the California Air Resources Board (CARB) and the California Attorney General; (2) a Consent Order submitted by the FTC; and (3) a proposed class settlement agreement with the PSC on behalf of a nationwide settlement class of current and certain former owners and lessees of eligible 2.0L TDI Volkswagen and Audi vehicles. The parties believe that the class settlement as presented to the Court will provide a fair and reasonable resolution for affected Volkswagen and Audi customers. Volkswagen continues to work expeditiously to reach an agreed resolution for affected vehicles with 3.0L TDI V-6 diesel engines.
On April 22, 2016, Volkswagen recognized total exceptional charges of €16.2 billion in its financial statements for 2015 for worldwide provisions related to technical modifications and repurchases, legal risks and other items as a result of the diesel matter. As noted at that time, due to the complexities and legal uncertainties associated with resolving the diesel matter, a future assessment of the risks may be different.
"Today's announcement is within the scope of our provisions and other financial liabilities that we have already disclosed, and we are in a position to manage the consequences. It provides further clarity for our U.S. customers and dealers as well as for our shareholders. Settlements of this magnitude are clearly a very significant burden for our business. We will now focus on implementing our TOGETHER-Strategy 2025 and improving operational excellence across the Volkswagen Group," said Frank Witter, Chief Financial Officer of Volkswagen AG.
The agreements announced today are not an admission of liability by Volkswagen. By their terms, they are not intended to apply to or affect Volkswagen's obligations under the laws or regulations of any jurisdiction outside the United States. Regulations governing nitrogen oxide (NOx) emissions limits for vehicles in the United States are much stricter than those in other parts of the world and the engine variants also differ significantly. This makes the development of technical solutions in the United States more challenging than in Europe and other parts of the world, where implementation of an approved program to modify TDI vehicles to comply fully with UN/ECE and European emissions standards has already begun by agreement with the relevant authorities.
Proposed 2.0L TDI Settlements
Subject to Court approval of the proposed 2.0L TDI settlement program, Volkswagen has agreed, among other terms, to:
Buy back or terminate the leases of eligible vehicles, or provide free emissions modifications (if approved by the EPA and CARB), and also make cash payments to affected current and certain former owners and lessees.
o Volkswagen will establish a single funding pool to cover the 2.0L TDI settlement program. The maximum funding amount will not exceed $10.033 billion and is dependent on how many customers participate in the program and which option they choose if proposed modifications are approved.
o Customers can choose to sell back their vehicle to Volkswagen or terminate their lease without penalty, or, if a modification is approved, choose to have their vehicle modified free of charge and keep it. Customers who select any of these options will also receive a cash payment from Volkswagen.
o An eligible vehicle's value for a buyback will be determined based on the Clean Trade-In Value as published in the September 2015 edition of the NADA Used Car Guide, with adjustments for factory options and mileage.
Support the following environmental programs in the United States by agreement with the EPA and CARB:
o Pay $2.7 billion over three years into an environmental trust, managed by a trustee appointed by the Court, to remediate excess nitrogen oxide (NOx) emissions from 2.0L TDI vehicles.
o Invest $2.0 billion over 10 years in zero emissions vehicle (ZEV) infrastructure, access and awareness initiatives.
Volkswagen will begin the settlement program as soon as the Court grants final approval to the settlement agreements. At the earliest, approval will occur in the fall of 2016. Potential claimants under the class settlement do not need to contact Volkswagen or Audi, or their dealers, at this time. Individual class members will receive extensive notification of their rights and options (including the option to "opt out" of the settlement agreement) if the Court grants preliminary approval of the proposed class settlement at a hearing scheduled to take place on July 26, 2016.
More information about the proposed 2.0L TDI settlement program, including the settlement agreements in full, can be found at www.VWCourtSettlement.com or www.AudiCourtSettlement.com.
NOTES TO EDITORS
Volkswagen in the United States
Volkswagen Group of America (VWGoA), a wholly owned subsidiary of Volkswagen AG, employs more than 6,000 people in the United States and supports more than 1,000 dealer locations in all 50 states. Volkswagen has more than 60 years of history in the United States, where VWGoA maintains more than 30 U.S. locations including a LEED Platinum-certified manufacturing facility in Chattanooga, Tennessee.
The Chattanooga facility employs more than 2,500 people and supports suppliers who provide some 9,200 jobs. The facility produces the Volkswagen Passat and will launch production of a new, seven-passenger midsize SUV in late 2016. Volkswagen is investing $900 million to expand its U.S. manufacturing footprint through production of the new SUV as part of Volkswagen AG's plan to invest more than $7 billion in North America from 2015 through 2019.
The Multi-District Litigation (MDL)
The case is known as In Re: Volkswagen "Clean Diesel" Marketing, Sales Practices and Products Liability Litigation, MDL 15-2672, in United States District Court for the Northern District of California in San Francisco before Judge Charles R. Breyer.
The following 2.0-liter TDI engine vehicles are included in the proposed 2.0L TDI settlement program:
VW Beetle VW Golf VW Jetta VW Passat Audi A3
2013- 2015 2010-2015 2009-2015 2012-2015 2010-2013; 2015
The proposed 2.0L TDI class settlement was executed by Volkswagen AG, Volkswagen Group of America, Inc., Volkswagen Group of America Chattanooga Operations, LLC and Audi AG, which have agreed to cover claims administration costs as well as plaintiffs' reasonable attorneys' fees and expenses. Volkswagen has agreed to the appointment by the Court of a Claims Supervisor who will review customer claims to confirm that the claims administration process is conducted in accordance with the FTC Consent Order.
After final approval of the class settlement, claims of class members who have not opted out of the class settlement will be dismissed.
Resolution with U.S. States
The separate agreements with U.S. states, the District of Columbia and Puerto Rico resolve existing and potential consumer protection claims under state statutes governing unfair and deceptive acts and practices (UDAP) in relation to more than 534,000 2.0L and 3.0L TDI vehicles originally sold or leased in the participating states and districts before September 18, 2015. They were executed by Volkswagen AG, Volkswagen Group of America, Inc., Audi of America, LLC, Volkswagen Group of America Chattanooga Operations, LLC and Audi AG, as well as Dr. Ing. h.c. F. Porsche AG and Porsche Cars North America, Inc.
Volkswagen will pay approximately $583 million to the signatories and $20 million to the National Association of Attorneys General (NAAG) for use by state attorneys general for consumer protection oversight, training and enforcement, and for the reimbursement of costs and expenses related to this matter. Participating states include California, Florida, Illinois, New York, Pennsylvania and Texas. At this point, the signatories do not include Arizona, New Jersey, New Mexico, Oklahoma, Vermont and West Virginia, which have 30 days to join in the settlement.
Other Legal Matters
Volkswagen continues to work to resolve outstanding legal matters in the United States. These include civil claims by the DOJ, FTC and private plaintiffs represented by the PSC related to 3.0L TDI vehicles and various other putative class action claims, civil penalties sought by the EPA and potential state environmental claims, and any criminal investigations by the DOJ.
About Volkswagen Group of America, Inc.
Volkswagen Group of America, Inc. (VWGoA) is a wholly owned subsidiary of Volkswagen AG, one of the world's leading automobile manufacturers and the largest carmaker in Europe. VWGoA operates a manufacturing plant in Chattanooga, Tennessee and is the U.S. headquarters for distinguished and exciting brands, including Audi, Bentley, Bugatti, Lamborghini and Volkswagen, as well as VW Credit, Inc. Founded in 1955, the company's headquarters are in Herndon, Va. The company has approximately 6,000 employees in the United States and sells its vehicles through a network of approximately 1,000 dealers.
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