VW faces long recovery after $14B emissions settlement

Washington — Volkswagen is facing a long road back to recovery after agreeing to spend $14.7 billion to settle consumer lawsuits and government allegations that it rigged hundreds of thousands of cars to cheat U.S. emission standards. Federal regulators called the agreement “historic” on Tuesday.

The settlement was filed with a U.S. District Court in San Francisco. It calls for Volkswagen to pay more than $10 billion to either buy back or repair about 475,000 2-liter diesel vehicles that were sold between 2009 and 2015 and were built with devices to trick emissions testers.

The company also will compensate owners who purchased 2-liter diesels before September 2015 with payments of $5,100 to $10,000, depending on the age of their cars.

In addition, the German automaker will pay $2.7 billion into a federal environmental mitigation trust fund and spend another $2 billion for research on zero-emissions vehicles under the settlement.

Analysts said the settlement is just the beginning of Volkswagen’s attempt to get out from under the shadow hanging over its brand since the emission scandal begin last September.

“Volkswagen has to swallow a $15 billion pill, but it needs to take this medicine in order to move on,” said Edmunds.com’s Director of Pricing and Industry Analysis Jessica Caldwell.

“This massive financial hit won’t magically make VW’s troubles disappear overnight, and it still has a long road ahead to repair its reputation among car shoppers. The company got a head start earlier this month by announcing a long-term commitment to electrification, but it will be a long time before shoppers will trust VW as an environmentally friendly brand.”

The settlement was reached between Volkswagen and the Environmental Protection Agency, Department of Justice and Federal Trade Commission. EPA Administrator Gina McCarthy said the agreement is “groundbreaking” and would send a message to other auto companies about the importance of following federal pollution mandates.

Volkswagen’s stock was trading at about $27 per share on Tuesday morning as the terms of the settlement were being announced. The stock was trading for more than $46 per share one year ago, before the emissions scandal began. On Tuesday, VW stock closed at $28.25, up $1.39 or 5.2 percent.

The company’s U.S. sales were down from 34,758 cars in May 2015 to 28,779 in May 2016, according to figures reported by Volkswagen. The company says it has sold 125,205 cars in the U.S. so far this year, compared with 144,006 in the period between the beginning of January and the end of May last year.

Rebecca Lindland, senior analyst at Kelley Blue Book, said Volkswagen will have to focus on offering cars that are attractive to consumers who might have soured on the brand during the emission scandal to woo them back.

“It’s a huge settlement for any company, especially involving a non-fatal issue,” she said. “But this has dragged on long enough and the sooner VW puts this behind them, the better. They need to concentrate on launching the product-led renaissance that will revitalize the brand and its reputation.”

VW not out of woods

Federal officials noted Tuesday the settlement doesn’t address potential criminal charges that could be pursued against Volkswagen officials. The agreement also doesn’t address emissions violations that were found with Volkswagen’s 3-liter diesel vehicles.

Deputy U.S. Attorney General Sally Yates said Volkswagen is being punished for committing “one of the most flagrant violations of our country’s consumer and environmental laws in our country’s history.”

Yates made clear that Volkswagen is not out of the woods when it comes to potential criminal prosecutions. “We’ll follow the facts wherever they go and we’ll make a determination about whether any companies or any individuals should be charged,” she said.

Volkswagen said it is accepting the terms of the agreement that have been hammered out with regulators at the multiple federal agencies.

“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,” said Matthias Müller, CEO of Volkswagen AG, in a statement.

Settlement sets record

The beleaguered German automaker was accused by the EPA in September 2015 of selling diesels for years with software that activated required air pollution equipment only during emissions tests. They had been marketed as “clean diesels” for the company’s Volkswagen, Audi and Porsche brands between 2008 and 2015.

Volkswagen has admitted to programming its diesel cars to trick emissions testers into believing the engines released far less pollution into the air than they actually do, in violation of the federal Clean Air Act. Regulators have said that in normal driving they emitted up to 40 times more smog-causing nitrogen oxide than the legal limit.

Karl Brauer, senior analyst at Kelley Blue Book, said Volkswagen “should hold the record for most expensive automotive settlement for quite some time,” noting that the company’s settlement is “nearly tenfold the cost of recent payouts by GM and Toyota.”

klaing@detroitnews.com

The Associated Press contributed.