Volkswagen to Pay More Than $10 Billion to Settle Emissions Claims

Volkswagen to Pay More Than $10 Billion to Settle Emissions Claims

Article By Mike Spector and Sara Randazzo simone mescolini / Shutterstock.com

Company will pay diesel car owners at least $5,100 on top of buyback or fix.

Volkswagen AG is nearing a $10 billion civil settlement, the largest in the auto industry’s history, to compensate U.S. owners of vehicles affected by the German car maker’s emissions-cheating scandal, said people familiar with the matter.

Under the proposed deal, Volkswagen would offer to buy back cars and provide additional compensation for owners of almost 500,000 diesel-powered vehicles with two-liter engines that contain software capable of duping government emissions tests, the people said.

In addition, Volkswagen is expected to pay more than $4 billion for environmental impacts and to promote so-called zero-emission vehicles, the people said. Volkswagen faces other government penalties in the U.S. and around the globe.

“If VW succeeds in settling the case, it will take a big step forward but have many more ahead of it,” said Erik Gordon, a professor at University of Michigan’s Ross School of Business. “The enormity of VW’s world-wide problems are hard to estimate but already are many times what management originally thought.”

Volkswagen is offering to either buy back vehicles at their market value before the scandal emerged in September or make affected vehicles compliant with environmental regulations. The car maker will also provide additional cash whether owners choose to sell or keep their cars, the people said.

Consumers could get at least $5,100 and some could receive up to $10,000, beyond the price of the buyback or repair, one of the people said. Cars affected include model year 2009 to 2015 Volkswagen Jettas, 2010 to 2015 Volkswagen Golfs, 2012 to 2015 Volkswagen Passats and Beetles, and 2010 to 2015 Audi A3s, all with diesel engines.

The settlement isn’t the first time a car maker has been forced to repurchase autos. Fiat Chrysler Automobiles NV last year agreed in certain instances to repurchase some trucks in a settlement with U.S. car-safety regulators covering recall lapses involving millions of vehicles.

“The consumer is finally getting their due, but it took a long time and lot of money,” saidSteve Kalafer, a Volkswagen dealer in New Jersey. He said an earlier program that offered Volkswagen diesel-car owners $1,000 and a roadside emergency-service plan “was deferring reality.”

I feel deceived and duped.

—Stephanie Walkenshaw, Jetta owner

Mr. Kalafer said dealers are waiting for the company to comprehensively address their woes. Volkswagen halted sales of affected vehicles in the fall, leaving dealers with expensive inventory.

“It has been a nightmare for the retailers,” he said.

Stephanie Walkenshaw, who bought a diesel Jetta just over a year ago, plans to sell back her car and will be watching for any conditions attached to the payouts. The 38-year-old Denver resident has continued to drive the Jetta, which she purchased in part because she thought it was good for the environment. “I feel deceived and duped,” she said.

A Volkswagen spokeswoman declined to comment on Thursday. Bloomberg and the Associated Press earlier reported some details of the expected settlement.

The people cautioned that negotiations among Volkswagen, plaintiffs’ lawyers and government officials involved in widespread litigation consolidated in a San Francisco federal court were ongoing and terms of the settlement could change. U.S. Judge Charles Breyer, who is overseeing the litigation, set a June 28 deadline for the auto maker and other parties to reach a settlement to resolve the emissions lapses.

Elizabeth Cabraser, the lead plaintiffs’ lawyer representing U.S. consumers, said in a statement that the settlement, “will provide substantial benefits to both consumers and the environment—providing car owners and lessees fair value for their vehicles, while also removing environmentally-harmful vehicles from the road.”

The U.S. Justice Department sued Volkswagen in January on behalf of the Environmental Protection Agency, alleging the German car giant violated federal clean-air laws by using software known as defeat devices that allowed vehicles to pollute more on roadways than during government tests.

The Federal Trade Commission, which enforces U.S. consumer protection laws, also sued the auto maker in March alleging the company falsely advertised “clean diesel” vehicles with low emissions. Volkswagen also faces claims by consumers alleging declining resale values and other grievances.

The auto maker also faces litigation and investigations over similar allegations involving 85,000 diesel-powered autos with three-liter engines.

Volkswagen has acknowledged installing the problematic software on some 11 million vehicles world-wide. In the U.S., officials said Volkswagen diesel-powered vehicles emitted nitrogen oxides at up to 40 times the allowable standard.

Costs of the proposed deal raise the stakes for any future cases. Toyota Motor Corp. and General Motors Co. paid $1.2 billion and $900 million, respectively, to settle criminal charges stemming from earlier safety lapses.

Toyota was penalized for failing to report unintended acceleration issues while GM’s case arose from millions of older cars with faulty ignition switches that were tied to 124 deaths in accidents. GM overall has reached settlements with the U.S. Justice Department, shareholders and thousands of consumers totaling more than $2 billion. It still faces additional litigation and trials over a faulty switch that could shut off power to air bags and power brakes.Japanese air-bag supplier Takata Corp. has suffered fines and faces a criminal probe in the U.S. over defective air bags in tens of millions of vehicles that can rupture and spray shrapnel. Takata has said it is cooperating with government officials.

Volkswagen has set aside more than $18 billion to recall millions of vehicles and settle legal claims, and additional possible financial penalties still loom.

Its troubles come as other auto makers have admitted to misstating fuel economy or been accused of emissions lapses. Mitsubishi Motors Corp. this week forecast a $1.38 billion loss for the fiscal year ending March 2017 after admitting it misstated fuel-economy on vehicles in Japan.

The proposed U.S. settlement would mark a potential bookend for Volkswagen on the scandal. Some Volkswagen shareholders earlier this week berated executives at the company’s annual shareholders meeting in Germany over the company’s response to the emissions cheating, which U.S. environmental regulators disclosed in September. The German auto maker has repeatedly apologized for the scandal.

The Justice Department is separately conducting a criminal probe of Volkswagen over the emissions cheating. The auto maker decided against releasing initial findings of its own investigation in part because of concerns it could hurt any credit the company might receive from U.S. prosecutors for cooperating with the probe.

Write to Mike Spector at mike.spector@wsj.com and Sara Randazzo at sara.randazzo@wsj.com