VW dealer accord said to add $1.2bn to scandal costs

San Francisco - Volkswagen will pay about $1.2bn to reimburse US dealers for losses caused by the emissions-cheating scheme, a person familiar with the matter said.

VW will also buy back unfixable used vehicles under the same terms as those given consumers, lawyers for the 652 dealerships said in a statement without disclosing the value of the tentative settlement. The German automaker said separately it agreed to make cash payments and provide additional benefits to dealers to resolve their claims.

The agreement, which raises the amount VW will pay to resolve US lawsuits to $16.5bn, 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, VW still faces investor claims and possible criminal charges. VW also doesn’t have an approved fix for the 562 000 rigged diesel vehicles still polluting US 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.”

Shares rise

The shares gained as much as 2% and were up 1.4% to €122.05 as of 9:39. The stock has dropped 8.6% this year, valuing the German automaker at €63.2bn.

VW reached a $14.7bn agreement in July with car owners and US and California regulators that calls for buying back or fixing 480 000 vehicles with 2-litre engines. The company is also on the hook for $603m it agreed to pay 44 states.

The automaker still faces more state government claims and investor suits in the US as well as legal claims in Germany and South Korea. Criminal penalties hang over the automaker in all three countries.

US District Judge Charles Breyer, who last month gave preliminary approval to the carmaker’s settlement covering the 2-litre models, pressed VW in court on Thursday for a solution for vehicles with 3-litre engines. Those models include the Volkswagen Touareg, Porsche Cayenne and Audi Q5.

Breyer ordered VW to file a plan for fixing the 3-litre engines, and proof that it works, to regulators by Octopber 24 and report back to him on November 3.

Dealer lawsuit

"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 VW in class actions alleging fraud and false advertising. VW 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 VW chief executive officer Martin Winterkorn.

The carmaker’s namesake brand sold 349 440 cars and light trucks in the US last year. VW brand’s sales fell almost 14% through July while industrywide deliveries rose 1.3%, according to researcher Autodata VW’s market share dropped to 1.7% from 2.1%, Autodata said.

Blindsided

“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 VW to lower prices to help them sell more vehicles, said Alan Brown, a partner in a dealership in Lewisville, Texas, and chairperson of VW’s US dealer council. The automaker will also widen the range of vehicles US 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 US Environmental Protection Agency has yet to approve any of VW’s proposed remedies, it could be years before any of the vehicles are taken off US roads, a possibility that may increase penalties.

The company has earmarked €18bn to cover the costs of the scandal. Most of the 11 million cars equipped with the defeat devices were sold in Europe, where a fix for some of the cars has been approved.

The US case is In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices and Products Liability Litigation, MDL 2672, US District Court, Northern District of California (San Francisco).


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