Volkswagen will spend up to $15.3 billion to settle consumer lawsuits and government allegations that it cheated on emissions tests in what lawyers are calling the largest auto-related class-action settlement in U.S. history.
Up to $10 billion will go to 475,000 VW or Audi diesel owners, who thought they were buying high-performance, environmentally friendly cars but later learned the vehicles' emissions vastly exceeded U.S. pollution laws. VW agreed to either buy back or repair the vehicles, although it hasn't yet developed a fix for the problem. Owners will also receive payments of $5,100 to $10,000.
The settlement also includes $2.7 billion for environmental mitigation and another $2 billion for research on zero-emissions vehicles. The German automaker also settled claims with 44 states, Washington, D.C., and Puerto Rico for about $603 million. It still faces billions more in fines and penalties as well as possible criminal charges.
Volkswagen has admitted that the cars, equipped with 2-liter diesel engines, were programmed to turn on emissions controls during government lab tests and turn them off while on the road. Investigators determined that the cars emitted more than 40 times the legal limit of nitrogen oxide, which can cause respiratory problems in humans. The company got away with the scheme for seven years until independent researchers discovered the scheme and reported VW to the Environmental Protection Agency.
"Using the power of the Clean Air Act, we're getting VW's polluting vehicles off the road and we're reducing harmful pollution in our air — pollution that never should have been emitted in the first place," said Gina McCarthy, administrator of EPA. "It should send a very clear message that when you break the laws designed to protect public health in this country, there are serious consequences."
The settlement still must be approved by U.S. District Judge Charles Breyer, who has set a hearing for preliminary approval on July 26. Final approval is expected in October.
If the settlement is approved, owners who choose to have VW buy back their cars would get the National Automobile Dealers Association clean trade-in value from before the scandal became public on Sept. 18, 2015. That would be $12,500 to $44,000, depending on the model, age, mileage and options on their car, the Justice Department said in a statement.
Models covered by the settlement include the 2009-2015 Jetta and Audi A3, the 2010-2015 Golf, and the 2012-2015 Beetle and Passat, all with 2-liter diesel engines.
Owners can also have VW repair the cars for free — assuming it comes up with a fix. According to court documents filed Tuesday, there currently is no repair that can bring the cars into compliance with U.S. pollution regulations. When VW eventually proposes a repair, it must be approved by the Environmental Protection Agency and the California Air Resources Board. VW has to submit proposed fixes to the EPA between November 2016 and October 2017.
Any repair that regulators approve could hurt the cars' acceleration and fuel economy. The EPA said Tuesday that any fix VW develops won't bring the cars in full compliance with clean air laws. The $2.7 billion in environmental mitigation will go toward offsetting the increased pollution, the agency said. Volkswagen marketed the cars as more fuel efficient and better performing that those with regular gasoline engines. If it can't come up with a repair, VW could have to buy back most of the vehicles.
Volkswagen also will pay off customers' loans if they owe more than their car is worth due to rapid depreciation. Owners will have the option of having VW retire loans up to 130 percent of the cars' value before the scandal.
Owners can still decline Volkswagen's offer and sue the company on their own.
The company has to buy back or repair 85 percent of the vehicles by June 30, 2019, or pay even more money into an environmental trust fund.
Elizabeth Cabraser, lead attorney for consumers who sued the company, said negotiations — which were sometimes heated — began in February. She said the agreement holds Volkswagen accountable to consumers and to the environment.
"To be able to do something to repair harm to our environment is a tremendous opportunity," she said. "Sometimes money serves as a proxy for justice."
Lawyers are still working on settlements for another 80,000 vehicles with 3-liter diesel engines. Cabraser said plaintiffs are also pursuing a case against German auto supplier Bosch, which supplied engine control computers for VW diesels.
Volkswagen says the $10 billion consumer settlement assumes that it will buy back all of the cars.
"We take our commitment to make things right very seriously and believe these agreements are a significant step forward," Volkswagen AG CEO Matthias Mueller said in a statement.
VW said in April that it has set aside $18.2 billion to cover the cost of the global scandal, which includes a total of 11 million vehicles worldwide. The scandal has hurt VW-brand sales in the U.S. In the first five months of 2015, before the scandal, Volkswagen sold 144,006 cars in the U.S. In the first five months of this year, the total fell 13 percent to 125,205.
Zandy Hartig, a Los Angeles actress who owns a diesel-powered 2013 Jetta SportWagen, plans to opt for the buyback. She would prefer to keep her car, but doesn't trust Volkswagen to come up with a fix that meets pollution standards.
"It's like having an extremely bad boyfriend that you're still in love with," Hartig said. "I thought I was doing a good thing and did my due diligence. I feel betrayed."
Volkswagen dealer Steve Kalafer of Flemington, New Jersey, says owners will likely welcome the buyback money but the brand's reputation has suffered so much some customers will never come back.
"This was not an honest mistake," he said.
Kalafer says dealerships and their employees are the "biggest losers" in the settlement. Depending on the month, his sales are down 20 percent to 50 percent compared with before and it's hard to keep technicians and salespeople on staff, he said.
The scandal erupted in September when U.S. regulators revealed that the German automaker had fitted many of its cars with software to fool emissions tests and had put dirty vehicles on the road. Car owners and the U.S. Department of Justice sued.
The company, which knew the EPA's testing routine, was finally caught by the International Council on Clean Transportation, which hired West Virginia University to test a VW in real roads conditions. The EPA has since changed its testing to include on-road tailpipe checks.