Volkswagen Reaches Agreement on Dieselgate, but Questions Remain

, senior vehicles analyst | June 28, 2016, 1:12 pm EDT
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Today, Volkswagen came to a partial consent decree with the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) over the diesel deception undertaken by the company. The deal lays out a path forward for consumers who bought the polluting vehicles, as well as a plan for mitigating the ensuing pollution—but a number of key questions still remain.

What the deal means for VW’s customers

If you are the owner of one of these cars with the a 2.0L diesel engine, you face three choices: 1) you can sell your car back to Volkswagen at a premium above the bluebook value, which varies by model year and trim level (between $12,500 and $44,000); 2) you will be offered the opportunity to repair your vehicle, even though no fix has yet been authorized, for which you will receive some compensation ($5,100 to $10,000, again dependent upon the trim, model year, etc. of your vehicle); or 3) you could choose to do nothing, in which case you receive no compensation.

In total, it’s estimated Volkswagen could pay up to around $10 billion in compensation to customers under this provision.

The biggest question surrounding this settlement lies in #2—if there is no approved fix, what does that mean for the settlement? And what if no fix is ever approved?

For the vehicles sold, it is unlikely that VW will be able to make the vehicles fully compliant.

However, in order to allow the option for consumers to keep their vehicles, the agencies are continuing to work with Volkswagen to certify a fix that will reduce between 80 and 90 percent of the excess pollution from the vehicle. The partial consent decree sets forth a number of criteria that any potential fix must meet, including threshold tailpipe emissions and durability as well as criteria regarding vehicle performance and fuel economy.

What the deal means for the environment and public health

Unfortunately, it’s clear that these vehicles have polluted the environment beyond what is legal, and they will continue to do so moving forward. Therefore, additional funds are set aside to deal with this excess pollution.

Volkswagen is required to set aside $2.0 billion for investments in electric vehicles—this includes investments for infrastructure, education, and access. While this money remains in control of VW, they will be required to submit four 30-month plans, enacted over 10 years, that are approved by the EPA and CARB. This money will be used to drive investment in cleaner emitting technologies.

In addition to this, VW is required to fund $2.7 billion in mitigation, to be distributed to individual states for mitigation projects. Within the agreement are specific types of projects on which that this money can be spent, including electrification of buses and heavy-duty truck scrappage programs to accelerate getting older, higher-emitting trucks off the road.

Financial inducements to get the cars at the heart of this scandal fixed or off the road is a critical piece of the settlement. Volkswagen is required to fix or buy back at least 85 percent of these vehicles—if this threshold is not met, additional funds will be set aside for mitigation projects.

What questions still remain?

From Volkswagen’s perspective, the biggest question is probably regarding the civil penalty. This settlement does not include any civil penalties under the Clean Air Act. There continues to be criminal prosecution underway into who knew what when, and to what fault, so any civil penalties are unlikely to be wrapped up for some time.

From the consumer’s perspective, there still remains significant uncertainty—there is no fix yet approved, and the process by which any owner of these vehicles can sell back their vehicle will not be set in motion until the fall. Even then, it will still likely happen in tiers, as different types of vehicles may have their fixes approved at different times; it’s not as though VW can immediately handle 480,000 vehicles being turned in during a single month. The cut-off for an 85 percent turn-in/fix is not until 2019, so consumers could be dealing with this for years to come.

It’s not just consumers who will be dealing with the aftermath—there are a lot of questions for the public as well, particularly in terms of health and environmental impacts. Will $4.7 billion be enough investment to mitigate the impacts of these vehicles? This depends on a number of factors, including how effectively the funds are allocated, how many vehicles are scrapped versus fixed, and how adequate the fix is. Given the many uncertainties, we will likely not know the full costs for years.

One thing is abundantly clear, however—there is no full compensation possible for the amount of damage done to the environment, consumers, the public writ large, or to Volkswagen themselves for this egregious act of deception. We’ll all be paying for this for years to come.

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  • solodoctor

    So should consumers boycott VW products until these questions are answered, penalties are set, criminal prosecutions pursued? If VW goes bankrupt, who picks up the tab at that point?

    • This settlement is much more about the consumers who’ve purchased VW vehicles already. There will be an additional settlement for the larger vehicles with the 3.0L engines that also had defeat devices, and there will likely still be a DOJ penalty assessed as a deterrent for other manufacturers.

      Volkswagen has set $18B aside for this process already, which exceeds the amount of this settlement — while being punished for their deception has changed their investment strategies and compliance pathways moving forward, they are in no danger of going bankrupt.