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Friday
Jul012016

The Wages of Sin, VW Edition

By Christopher A. Sawyer

Nine months after VW was caught using a defeat device on it diesel vehicles, it has come to an accommodation with the Environmental Protection Agency, and presented the agreement to the presiding judge, Charles Breyer. The 225-page agreement between Volkswagen AG, the U.S. Department of Justice, the U.S. Federal Trade Commission, the State of California and the Plaintiffs Steering Committee for the consolidated class-action lawsuits covers 499,000 vehicles, of which approximately 466,000 are still on the road. And while the $10.03 billion set aside to buy back or modify the offending vehicles has garnered the most headlines, it is the requirement for VW to remove 85% of the affected 2.0-liter turbodiesel-powered cars from U.S. roads by no later than June 30, 2019, that could have the greatest long-term financial effect on Volkswagen in North America.

The cars affected are:

  • 2009-2013 Audi A3 TDI
  • 2009-2014 VW Jetta and Jetta SportWagen TDI
  • 2010-2013 VW Golf TDI
  • 2012-2014 VW Beetle TDI
  • 2012-2014 VW Passat TDI
  • 2015 VW Jetta, Passat and Beetle TDI
  • 2015 VW Golf, Golf SportWagen TDI
  • 2015 Audi A3 TDI


Those owners choosing to participate in the buyback provision of the agreement will be paid the “Clean Trade-In” value of their particular vehicle as established by the National Automobile Dealers Association as of September 2015, just prior to the discovery of VW’s cheating. This amount will be adjusted to reflect vehicle mileage and optional equipment, and some owners will qualify to have their car loan or lease obligations terminated without penalty. This is the option VW hopes the majority of owners — those driving the estimated 325,000 diesel vehicles not fitted with Selective Catalytic Reduction (SCR) after treatment systems — choose as it appears that there is no feasible way in which to bring those vehicles into compliance with applicable emission regulations. That list of vehicles includes all 2009-2013 Audi A3s and all 2009-2014 VWs, except for the 2012-2014 Passat.

Passat TDI may be repairable as it came with SCR after treatment, though no fix has been determined.The 2012-2014 Passats and all 2015 Audi and VW TDI models are fitted with SCR after treatment systems, and it is believed that a modification to those systems that would allow them to meet applicable emission standards is possible. However, it is unknown what effect these changes might have on performance and fuel economy, or how willing the California Air Resources Board (CARB) and EPA will be to recertify these cars. It’s safe to say VW will be watched very closely, and its modifications put through every conceivable lab and real-world test before they are approved. If approved, these modifications will be made to each vehicle at no cost to the consumer. And if no solution is put forward that meets EPA and CARB criteria, owners of these vehicles still will be able to participate in the buyback program.

Owners agreeing to participate in the settlement of the class-action lawsuit, who bought an affected vehicle from a VW dealer no later than September 18, 2015, are eligible for a cash payment of $5,100 to $10,000. (This amount will not be reduced by any outside costs such as attorney fees as those will be paid by Volkswagen.) This part of the agreement is separate from and unrelated to the buyback provision. Those owners choosing to hold on to their vehicles will be just as eligible for this payout as those turning them in. However, by accepting this money, all forfeit any right to pursue further legal action against VW.

In addition, VW has agreed to pay a further $2.7 billion in fines to fund “clean emissions” technology, though what qualifies for consideration under this heading currently is unknown. These monies will be placed in an “environmental remediation” trust administered by a third party, and could be used to buyback or pay for modifications to older diesel-powered trucks. This would be an expansion of the Diesel Emissions Reduction Act that retrofitted high-emitting transit busses with modern emission after treatment systems, and paid to pull older diesel trucks off the road.

Audi A3 with 2.0-liter TDI also affected.In addition to all this, Volkswagen is expected to pay a further $2.0 billion in environmental remediation funds toward zero-emission technology. These monies will be split between the EPA and CARB as California is where the vast majority of not-so-clean VW diesels were sold. (Regulators in 44 states, including California and New York, have settled with VW for a total of $603 million. This is in addition to the money in the environmental remediation trust mentioned above.) That money would fund a lot of fast-charging kiosks — approximately 100,000, using U.S. Department of Energy mean installation costs (2014) — though it’s probable that it also will be used for education, advertising and other programs to support the adoption of electric vehicles by consumers.

What is still unclear is what VW will do with the cars that it buys back. Under the settlement, all vehicles returned under the recall program must have their engine control units (ECUs) removed, and “may be… recycled to the extent permitted by law.” Thus the salvaged cars can be broken up and their parts — except for the ECU, oxidation catalyst and particulate filter — resold or exported. VW also may not export complete vehicles to other countries for resale or use, or otherwise recommission any of the recalled cars made inoperable without first assuring that they have received an approved emissions modification bringing them into compliance with EPA NOx limits. In effect, this forces VW to either find an emissions solution for the SCR-equipped cars, or do its best to convince 85% of the owners of the affected cars still on the road to turn them in. They will receive exceptional offers designed to move them into a new car, as VW will receive further fines for all non-conforming vehicles not turned in.

The 3.0-liter V6 also ran afoul of NOx emission standards, but will be dealt with in a separate settlement.This is a partial victory for consumers in that the government did not follow the route taken in the “Cash for Clunkers” program that forced dealers to destroy the engine and crush the rest of the vehicle. That not only removed a lot of high-quality used cars and trucks from market and, as a result, forced used car prices higher, it destroyed a ready supply of potential used parts from the system.

The settlement agreement is expected to be finalized July 26, with the time between now and then available for comment by interested parties. Barring any unforeseen changes brought on by this process, owners of the affected vehicles can expect to receive letters from VW outlining their options and payout later this year. Owners of VW’s, Audis and Porsches with 3.0-liter V6 TDI engines will be dealt with under a separate settlement that has a yet to be written.

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