Volkswagen faces long road ahead, even after settlement in cheating case
Even as the warring parties in Volkswagen’s emissions cheating scandal prepare to offer a peace proposal this week in the chambers of a U.S. federal judge, the German automaker’s travails are far from over.
Taking shape after months of round-the-clock negotiations is a broad settlement agreement, expected to exceed $10 billion, involving Volkswagen, the federal government and a half-million car owners. The provisions are expected to offer those owners some sort of financial compensation in addition to fixing or buying back their vehicles.
The deal, set to be announced Tuesday in the San Francisco courtroom of U.S. District Judge Charles R. Breyer, is also expected to require Volkswagen to pay penalties. The fines would be for the environmental damage caused by the company’s diesel engines, which were designed to fool emissions tests and often vastly exceeded allowable air pollution limits in on-the-road driving.
Investigations not over
All told, the civil settlement is set to be the largest in automotive history, dwarfing the $1.4 billion that Toyota paid to settle a class-action lawsuit over flawed accelerators and the more than $2 billion General Motors has paid so far to settle claims from owners of cars with faulty ignition switches. Toyota, in addition, paid $1.2 billion to settle criminal charges, while GM paid $900 million.
Even if Breyer accepts the Volkswagen deal, the company will have many unsettled issues, with unknown costs, in the United States and abroad.
“It’s clear Volkswagen desperately needed to put this horrible situation in the rearview mirror; they’ve negotiated this settlement with breathtaking speed,” said David M. Uhlmann, a former chief of the Justice Department’s Environmental Crimes Section who is now a law professor at the University of Michigan.
Still, Uhlmann said, “Volkswagen’s legal troubles won’t end on Tuesday.”
The deal, moreover, would not end the Justice Department’s criminal investigation into the company, which could lead to additional fines. Nor would it resolve investigations by attorneys general in more than 40 states and the District of Columbia. And the settlement would still be subject to a period of public comment, during which terms could yet change.
Bringing Volkswagen to this pass was its admission last year that it had installed illegal software in 11 million cars worldwide to make them capable of defeating pollution tests.
During emissions testing, the cars’ pollution controls systems were turned on, curbing toxic emissions at the cost of engine performance. But on the road, those emissions controls were not fully engaged. That allowed more horsepower and better fuel mileage but also enabled Volkswagen’s cars to spew polluting nitrogen oxides at up to 40 times the levels allowed under the Clean Air Act, the Environmental Protection Agency has said.
Separate claims
The issues that Tuesday’s settlement proposal is not expected to cover include how Volkswagen will repair its cars — a technical fix that is still being worked out. Nor will the deal address terms for the owners of 85,000 Volkswagen and Porsche cars sold in the United States that had a different type of diesel engine but also had emissions problems.
The varied attitudes of car owners, meanwhile, has also complicated negotiations. Owners are likely to be given the option of having Volkswagen buy back their vehicles or, if possible, fix them. Either way, they would also receive additional compensation of at least several thousand dollars.
Still, some car owners may choose not to participate in the group settlement being brokered in the U.S. District Court for the Northern District of California, and instead pursue separate claims. Affected Volkswagen owners are not bound by the settlement, and some of them may decide to press for even better terms; those owners, however, also risk getting a lesser settlement or none at all if their separate lawsuits are unsuccessful.
With its diesel technology now tainted in the eyes of consumers, Volkswagen is counting on electric vehicles to shore up its business. In an ambitious turnaround plan announced this month, Volkswagen said that battery-powered vehicles could account for as much as a quarter of its total sales within a decade — about 3 million vehicles a year. That would be up from negligible sales of electric vehicles by the company now.
Bruce Clark, associate professor of marketing at the D’Amore-McKim School of Business at Northeastern University, predicted a tough battle for Volkswagen to win back consumer confidence.
“Volkswagen made such a big and public bet on diesel, and it turns out they were lying to us,” Clark said. “The average consumer is going to say: ‘Why should we believe them again?’ ”