WASHINGTON -- Volkswagen will spend up to $15.3 billion to settle consumer lawsuits and government allegations that it cheated on emissions tests in what lawyers are calling the largest auto-related class-action settlement in U.S. history.
Up to $10 billion will go to 475,000 Volkswagen or Audi diesel owners who thought they were buying high-performance, environmentally friendly cars but later learned the vehicles' emissions exceeded U.S. pollution laws. In a settlement filed Tuesday in a San Francisco federal court, Volkswagen agreed to either buy back or repair the vehicles, although it hasn't yet developed a fix for the problem. Owners also will receive payments of $5,100 to $10,000, depending on the age of their vehicles.
The settlement also includes $2.7 billion for environmental mitigation and another $2 billion to promote zero-emissions vehicles. The German automaker also settled claims with 44 states, Washington, D.C., and Puerto Rico for about $603 million. It still faces billions more in fines and penalties as well as possible criminal charges.
Volkswagen has admitted that the cars, equipped with 2-liter diesel engines, were programmed to turn on emissions controls during government lab tests and turn them off while on the road. Investigators determined that the cars emitted more than 40 times the legal limit of nitrogen oxide, which can cause respiratory problems in humans.
The Volkswagen scandal is "one of the most flagrant violations of environmental and consumer laws" ever in the United States, Deputy Attorney General Sally Yates said at a news conference in Washington.
"This is by no means the last step," Yates cautioned. "The settlements do not address any potential criminal liability, though I can assure you our criminal investigation is active and ongoing." She said the United States was aggressively pursuing a criminal investigation of the company and of individuals.
The company got away with the subterfuge for seven years until independent researchers discovered the scheme and reported Volkswagen to the Environmental Protection Agency.
"Using the power of the Clean Air Act, we're getting VW's polluting vehicles off the road and we're reducing harmful pollution in our air -- pollution that never should have been emitted in the first place," said Gina McCarthy, chief of the EPA. "It should send a very clear message that when you break the laws designed to protect public health in this country, there are serious consequences."
The settlement still must be approved by U.S. District Judge Charles Breyer, who has set a hearing July 26 for preliminary approval. Final approval is expected in October.
"It will take a long time to determine the full cost of the scandal," said Frank Biller, an LBBW Bank analyst in Stuttgart, Germany. "Now it looks as if we might be able to close this chapter, and if that were to be true, it would remove some uncertainty."
Biller estimates the total price tag to exceed $29.36 billion, including potential litigation costs in other countries.
If the settlement is approved, owners who choose to have Volkswagen purchase their cars would get the National Automobile Dealers Association clean trade-in value from before the scandal became public Sept. 18. That would be $12,500 to $44,000, depending on the model, age, mileage and options, the Justice Department said in a statement.
Models covered by the settlement include the 2009-2015 Jetta and Audi A3, the 2010-2015 Golf, and the 2012-2015 Beetle and Passat, all with 2-liter diesel engines.
Owners also can have Volkswagen repair the cars for free -- assuming the automaker can provide a fix. According to court documents filed Tuesday, there currently is no repair that can bring the cars into compliance with U.S. pollution regulations. When Volkswagen eventually proposes a repair, it must be approved by the EPA and the California Air Resources Board. Volkswagen has to submit any proposed repairs to the EPA between November 2016 and October 2017.
Any repair that regulators approve is likely to hurt the cars' acceleration and fuel economy. Volkswagen marketed the cars as both more fuel-efficient and better-performing that those with regular gasoline engines. If it can't come up with a repair, Volkswagen could be forced to buy back all of the vehicles.
Volkswagen also will pay off customers' loans if they owe more than the cars are worth. Owners will have the option of having Volkswagen retire loans up to 130 percent of the cars' value before the scandal.
Owners can choose to decline Volkswagen's offer and sue the company on their own.
The company has to buy back or repair 85 percent of the vehicles by June 30, 2019, or pay even more money into an environmental trust fund.
Elizabeth Cabraser, the lead attorney for consumers who sued the company, said the negotiations -- which were sometimes heated -- have been going on since February. She said the agreement holds Volkswagen accountable to consumers and to the environment.
"To be able to do something to repair harm to our environment is a tremendous opportunity," she said. "Sometimes money serves as a proxy for justice."
Lawyers still are working on settlements for another 80,000 vehicles with 3-liter diesel engines. Cabraser said plaintiffs also are pursuing a case against German auto supplier Bosch, which supplied engine control computers for VW diesels.
Volkswagen said the $10 billion consumer settlement assumes that it will buy back all of the cars.
"We take our commitment to make things right very seriously and believe these agreements are a significant step forward," Volkswagen Chief Executive Officer Matthias Mueller said in a statement.
Volkswagen said in April that it has set aside $18.2 billion to cover the cost of the global scandal, which includes 11 million vehicles worldwide. The scandal has hurt Volkswagen-brand sales in the U.S. In the first five months of 2015, before the scandal, Volkswagen sold 144,006 cars in the U.S. In the first five months of this year, the total fell 13 percent to 125,205.
Zandy Hartig, a Los Angeles actress who owns a diesel-powered 2013 Jetta SportWagen, plans to opt for the buyback. She would prefer to keep her car but doesn't trust Volkswagen to come up with a fix that meets pollution standards.
"It's like having an extremely bad boyfriend that you're still in love with," Hartig said. "I thought I was doing a good thing and did my due diligence. I feel betrayed."
Volkswagen dealer Steve Kalafer of Flemington, N.J., said owners likely will welcome the buyback money but the brand's reputation has suffered so much some customers never will return.
"This was not an honest mistake," he said.
Kalafer said dealerships and their employees are the "biggest losers" in the settlement. Depending on the month, his sales are down 20 percent to 50 percent compared with before and it's hard to keep technicians and salesmen on staff, he said.
The scandal arose in September when U.S. regulators revealed that the German automaker had fitted many of its cars with software to fool emissions tests and had put dirty vehicles on the road. Car owners and the U.S. Department of Justice sued.
The company, which knew the EPA's testing routine, was finally caught by the International Council on Clean Transportation, which hired West Virginia University to test a Volkswagen in roads conditions. The EPA has since changed its testing to include on-road tailpipe checks.
Information for this article was contributed by Michael Biesecker, Tom Krisher, Dee-Ann Durbin and Jason Keyser of The Associated Press; by Jack Ewing and Hiroko Tabuchi of The New York Times; and by Kartikay Mehrotra, Margaret Cronin Fisk and Alan Katz of Bloomberg News.
A Section on 06/29/2016