Last September following extensive investigations carried out by the U.S. EPA and the California Air Resources Board, Volkswagen was issued notices of violation under the Clean Air Act for purposely fitting so-called emissions defeat devices in certain model-year cars fitted with 2.0-litre TDI diesel engines.
Essentially a software subroutine, the defeat device was intentionally designed to make affected cars appear to meet EPA and California emissions targets for Nitrogen Oxide when tested on a dynamometer in a laboratory, but emit more than 40 times the legal NOx limits when driven on the road — just so the automaker could claim higher fuel economy and improved performance.
The revelation quickly became known as Dieselgate, with the implications of the intentional illegal activity reaching far and wide across the entire automotive industry. Since then, further Volkswagen brands — including Audi and Porsche — have been found to have noncompliant diesel-engined vehicles, and the automakers from Mitsubishi to Kia and Ford to Fiat Chrysler have come under scrutiny over the way their official fuel economy and emissions tests are carried out.
Today, more than nine months after the transgression was first discovered, Volkswagen, working together with the U.S. Department of Justice, 44 U.S. states, the U.S. Federal Trade Commission, and many private plaintiffs have announced a proposed settlement agreement that could finally put the Dieselgate scandal to rest.
But while the proposed settlement — a 225-page document which could see Volkswagen facing more than $15 billion in costs in the U.S. alone — has been agreed upon in principle, it’s far from sealed and signed. First, the proposal will enter into a period of consultation, where both sides of the case will be given a chance to receive comments and feedback on the proposal. Then, if everything goes according to plan, the final agreement will be made legally binding on July 26, just under one month from now.
It’s worth noting too that this proposal only covers affected 2.0-litre TDI Volkswagen group vehicles made between 2009 and 2015: Volkswagen, Audi and Porsche vehicles fitted with the similarly non-compliant 3.0-litre V-6 TDI engine — which was found to be noncompliant with the Clean Air Act a few months after the original Dieselgate scandal broke — will have to wait a little longer to find out what the proposed fix is for their vehicles.
Simply put, the agreement can be broken down into three separate sections: direct owner compensation, vehicle buyback and/or vehicle modification; financial restitution to pay for the damage caused by the use and sale of noncompliant diesel-engined vehicles over the past seven years; and a commitment to invest in zero emission vehicles.
The first — owner compensation — is the largest financial burden for Volkswagen, and involves the automaker setting aside a single funding pool called the 2.0L TDI Settlement Program. Funded to the tune of $10.033 billion, this part of Volkswagen’s sentence will see the automaker each and every owner of an affected car in the U.S. the option to sell their car back to Volkswagen. The value of that buyback will be derived from the “Clean Trade-In” value as set by NADA (the National Automobile Dealers Association) back in September 2015 before news of the scandal broke, with adjustments made to reflect for any mileage or condition changes since that time.
As part of that buyback, some owners will receive cash payments from Volkswagen in exchange for their car, while those who are still paying off finance agreements or have ongoing leases will have their leases terminated without penalty or car loan written off.
Those who do not opt for the buyback will be offered a modification to their vehicle at a future point in the future (essentially when one that meets approval has been designed). If an owner opts for modification now and none are approved, they can still opt for vehicle buyback. Given such modifications are still waiting for approval, we’re guessing most customers will indeed opt for buyback.
Additionally, owners who are already part of class-action lawsuits against Volkswagen for the dieselgate scandal can, if they wish, agree to settle with Volkswagen for between $5,000 and $10,000 each, with their legal fees paid in full by Volkswagen. Interestingly, this extra payment is not influenced by whether someone opts for buyback or modification of their car, but does prevent owners from seeking further restitution in the future should they opt to settle.
The second part of the proposed dieselgate deal will see Volkswagen pay a total of $2.7 billion over the next three years into a special environmental trust set up specifically to remediate excess nitrogen oxide emissions from diesel vehicles. The trust, managed by a court-appointed trustee, will be used to fund various projects designed to reduce overall diesel-vehicle emissions. Such projects could include retrofitting older diesel vehicles with improved exhaust filtration systems, cash incentives designed to encourage owners of older diesel cars to trade their vehicle in for a cleaner, greener model, or perhaps even helping local businesses switch to cleaner commercial vehicles.
The final part of the deal will see Volkswagen invest $2.0 billion over the next ten years in zero-emission vehicle infrastructure, access and awareness initiatives. Not quite the mandated electric vehicle production program that some advocates were calling for, the program will be charged with creating a massive nation-wide infrastructure for zero emission vehicles, to include both battery electric and hydrogen fuel cell cars.
But here’s the really important bit: while it won’t require Volkswagen to build electric cars, not doing so after investing $2.0 billion seems to be not only illogical but unlikely. In other words, while the proposal doesn’t specifically mandate for electric vehicles to be built, it certainly makes doing so a no-brainer.
For those who want to see the dieselgate scandal resolve and electric vehicle advocates alike, that has to be good news.
Do you agree? Is Volkswagen being let off lightly, given that it could have faced more than $18 billion in fines alone before the agreement was penned? Or do you think that this proposed settlement offers something for everyone?
Leave your thoughts in the Comments below.
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