Volkswagen Expected to Pay Additional $1 Billion in Emissions Scandal
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Volkswagen Expected to Pay Additional $1 Billion in Emissions Scandal

The settlement covers the remaining diesel vehicles involved in the scandal

December 21, 2016

In what has become one of the biggest consumer class-action settlements in the history of the United States, Volkswagen has agreed to either buy back or fix the remaining diesel vehicles involved in its emissions scandal at a cost expected to reach $1 billion.

The New York Times (NYT) reports that the settlement, which is between Volkswagen and the federal government and covers approximately 80,000 Volkswagen, Audi, and Porsche vehicles, was announced following last-minute negotiations that had forced a judge to reschedule hearings more than once.

The automaker will also compensate the owners of the affected vehicles, though the exact terms are still being hammered out. According to U.S. District Court Judge Charles R. Breyer, who is presiding over the case, the amount of the compensation will be "substantial."

This settlement covers the diesel vehicles that were not included in the company's June agreement to pay almost $15 billion to settle claims regarding a separate group of 475,000 Volkswagen vehicles containing smaller engines.

The parties, including Volkswagen, the U.S. Environmental Protection Agency (EPA), the California Air Resources Board, and the Justice Department, are still ironing out certain details of the settlement.

"This settlement is about taking pollution out of the air we breathe," said Cynthia Giles, assistant administrator for enforcement and compliance assurance at the EPA.

Noting the agency's history of pursuing parties that pollute illegally, she continued, "It's also about showing what a strong EPA enforcement presence means for those who may break the law."

It is uncertain how much power the EPA will have to enforce the law under President-elect Trump's administration.

Taken together, Volkswagen's civil settlements are the biggest by an automaker in the history of the United States. June's agreement included a payment of $2.7 billion into an EPA fund to offset the excess diesel emissions coming from the affected vehicles, as well as another $2 billion investment in projects for zero-emission vehicles.

Owners of the vehicles covered under the June settlement may also have them fixed, though regulators have not yet approved any repairs.

The most recent settlement, for the 80,000 remaining vehicles, is similar. However, the automaker has told the government that it thinks that roughly 60,000 of those vehicles, the newer models, can be fixed in order to comply with federal emissions standards. If this fix can be shown to work, says the consent decree, the company will not have to buy back those newer vehicles.

Hinrich J. Woebcken, president and chief executive of Volkswagen Group of America, lauded the settlement as "another important step forward in our efforts to make things right for our customers" and said that Volkswagen is committed to resolving all remaining claims "as quickly as possible."

Elizabeth Cabraser, lead lawyer for the vehicle owners, said that she and the other lawyers were working to resolve remaining issues.

The estimated $1 billion cost from the settlement assumes that the automaker can fix the newer 60,000 vehicles. If its fix does not work and the company has to buy them back instead, its costs would skyrocket due to the fact that many are expensive luxury cars.

However, EPA Spokesman Nick Conger said that a technical review of the issue as well as discussions with Volkswagen indicated that it was "very possible that the newer vehicles can be fixed to comply with the emission standards."

The $1 billion also includes a payment of $225 million that the company will make into the EPA's fund for offsetting the environmental effect of the excess emissions.

The automaker's legal woes are not over. The Justice Department is conducting a criminal inquiry and attorneys general in 42 states, the District of Columbia, and Puerto Rico are investigating the company. It also faces investigations in several other countries, including South Korea and home country Germany, for the diesel cheating.

Owners of Volkswagen vehicles that are affected by the settlement are not bound by it. They can decide to either press for better terms or not to participate at all.