VW judge approves US$14.7b diesel-cheating settlement

[SAN FRANCISCO] Volkswagen AG and drivers suing the company in the US over its diesel-cheating scandal won final approval of their US$14.7 billion settlement to resolve what's likely to be the largest portion of VW's civil liability worldwide.

The accord requires VW to buy back cars with 2.0-litre diesel engines armed with so-called defeat devices used to beat emissions tests.

Under the deal VW reached in June with consumers and regulators including the EPA and Federal Trade Commission, car owners will be offered US$5,100 to US$10,000 each in compensation along with the option of a buyback or a fix.

The automaker has earmarked US$19.5 billion to cover costs stemming from the scandal.

With Tuesday's approval by US District Judge Charles Breyer in San Francisco, VW has committed to almost US$16.6 billion in settlements, including US$1.2 billion for US franchise dealers and US$603 million to US states over violations of consume protection laws.

Mr Breyer set aside objections to the agreement, noting that few VW owners complained "and their substance does not call into doubt the settlement's fairness".

Mr Breyer called the settlement fair, reasonable and adequate and it accomplishes the primary goal of getting the polluting cars off the road.

"There is no just reason for delay," Mr Breyer said in the order, which allows the buybacks to begin immediately.

Volkswagen's payout for settlements is among the largest in corporate history, exceeded by the US$246 billion agreement between the tobacco industry and US states in 1998 and the US$38 billion BP Plc has spent so far over the 2010 oil spill in the Gulf of Mexico to resolve government probes as well as claims for private property and economic losses.

"VW got itself in a lot of trouble on both sides of the Atlantic, basically lying to a host of governmental regulators, its ultimate customers and its many dealers in between," said Anthony Sabino, a law professor at St John's University in New York and an expert on complex litigation.

"They're not getting off cheap, but they're stopping the bleeding."

The president of VW's US unit called the settlement "an important milestone in our journey to making things right".

The carmaker is committed to carrying out the program as seamlessly as possible for customers, Hinrich J Woebcken said in an e-mailed statement.

While VW has resolved much of its legal exposure in just over a year since the emissions cheating was revealed, the company still faces a potential trial with owners of 3.0-litre diesel cars in the US, shareholder claims, environmental lawsuits by multiple states and criminal investigations by the Justice Department and in Europe.

"Volkswagen remains focused on resolving other outstanding issues in the United States and continues to work towards an agreed resolution for customers with affected 3.0L TDI V6 diesel engines," Woebcken said.

The carmaker agreed in the US settlement to devote as much as US$10 billion to buy back affected models and compensate drivers. It will also pay US$2.7 billion to federal and California regulators to fund pollution-reduction projects, and contribute US$2 billion toward investment in clean technology.

The settlement with the US government requires VW to get 85 per cent of the cars recalled by Jun 30, 2019.

If it fails to do that, it will have to pay US$85 million more into the environmental mitigation trust for each percentage point of the shortfall. It will also have to pay an additional U$13.5 million into the trust for each percentage point it falls below the 85 per cent target in California.

VW owners can continue to drive their vehicles for now, even if they wouldn't pass state emissions testing. Individual states may require approved emissions fixes on these vehicles in the future.

Owners who choose the buyback option will receive their cars' trade-in value as of last September, just before VW admitted to the emissions cheating, plus the compensation payments.

BLOOMBERG