Volkswagen AG, working to settle up with dealerships after admitting its emissions-cheating scheme, will buy back its unfixable used vehicles from U.S. dealers under the same terms as those given consumers, lawyers for the 652 dealerships said in a statement Friday.
The German automaker also said that it agreed to make cash payments and provide additional benefits to dealers to resolve their claims.
Volkswagen will pay about $1.2 billion to reimburse U.S. dealers for their losses, a person familiar with the matter said.
The agreement, which raises the amount Volkswagen will pay to resolve U.S. lawsuits to $16.5 billion, removes one obstacle for the carmaker as it seeks to repair its tarnished reputation. While the automaker has already settled with car owners and regulators, it still faces investor claims and possible criminal charges. Volkswagen also doesn't have an approved fix for the 562,000 rigged diesel vehicles still on U.S. roads.
"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 emailed 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."
Volkswagen reached a $14.7 billion agreement in July with car owners and U.S. and California regulators that calls for buying back or fixing 480,000 vehicles with 2-liter engines. The company is also on the hook for $603 million it agreed to pay 44 states. The automaker still faces more state government claims and investor suits in the U.S. as well as legal claims in Germany and South Korea. Criminal penalties hang over the automaker 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 Volkswagen in court Thursday for a solution for vehicles with 3-liter engines. Those models include the Volkswagen Touareg, Porsche Cayenne and Audi Q5. Breyer ordered VW to file a plan for fixing the 3-liter engines, as well as proof that it works, to regulators by Oct. 24 and report back to him 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.
Auto dealers and resellers sued Volkswagen alleging fraud and false advertising. The automaker 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, a goal set by former Volkswagen Chief Executive Officer Martin Winterkorn. The carmaker's namesake brand sold 349,440 cars and light trucks in the U.S. last year. Volkswagen sales fell almost 14 percent through July while industrywide deliveries rose 1.3 percent, according to researcher Autodata Corp. Its market share dropped to 1.7 percent from 2.1 percent, Autodata said.
"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.
Dealers also got a commitment from Volkswagen to lower prices to help them sell more vehicles, said Alan Brown, a partner in a dealership in Lewisville, Texas, and chairman of Volkswagen's U.S. dealer council. The automaker will also widen the range of vehicles U.S. dealerships can offer, he said.
"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."
Since the U.S. Environmental Protection Agency has yet to approve any of Volkswagen's proposed remedies, it could be years before any of the vehicles are taken off U.S. roads, a possibility that may increase penalties. Most of the 11 million cars equipped with the so-called defeat devices were sold in Europe, where a fix for some of the cars has been approved.
Business on 08/27/2016