Volkswagen has agreed to pay up to $14.7 billion to settle government allegations in the U.S. linked to its cheating on emissions tests and to buy back or terminate the leases of nearly half a million of its cars.
As part of sweeping settlements announced Tuesday, the German automaker is to spend up to $10 billion to buy back or modify VW and Audi 2.0-liter diesel vehicles in the U.S. – the figure is dependent on how many car owners take advantage of the offer. It also will pay $2.7 billion into a trust to support environmental programs and reduce emissions, as well as shell out $2 billion over a 10-year period to invest in and promote zero-emissions vehicles.
Volkswagen reached three separate but related settlements: the first with the U.S. Department of Justice, the California attorney general's office, the California Air Resources Board and the Environmental Protection Agency; the second with the Federal Trade Commission; and the third with owners. The agreements were developed in parallel.
The agreements, which still need to be approved by a federal court in San Francisco, would represent the largest settlement in U.S. history with an automaker.
U.S. Deputy Atty. Gen. Sally Yates hailed the settlement as a historic accord that partially resolves what she called "one of the most flagrant violations of our environment and consumer laws."
Under the nationwide agreements, drivers who have owned or leased VW or Audi 2.0-liter diesel vehicles at least since Sept. 18 will be eligible for compensation from the automaker.
Owners of 2-liter diesel cars made by Volkswagen in the model years 2009-2015 will receive between $12,500 and $44,000 from the automaker to buy back their cars. Leases of those vehicles also may be terminated without penalty, and leaseholders also may seek cash payments.
Those 475,000 cars affected by the agreement include Volkswagen's popular Beetles, Golfs, Jettas and Passats. Some Audi A3s also are covered by the settlements. The agreements do not cover about 90,000 cars with 3.0-liter engines that also had the cheating software.
Volkswagen could start buying back vehicles as early as this fall, said Elizabeth Cabraser, the court-appointed lead counsel for the VW consumer plaintiffs.
Drivers can also choose to have their vehicles modified by Volkswagen to pass emissions tests, once that method is approved by the California Air Resources Board and the EPA. Federal officials said such a modification does not yet exist, though the company is working on a fix.
Before choosing a fix, customers will be notified with full disclosure of any potential effects on mileage or vehicle performance, Cabraser said.
Regardless of choosing the buyback or modification options, owners will also receive a cash payment of at least $5,100, though some drivers could receive $10,000.
Volkswagen is required to modify, scrap or buy back at least 85% of the affected vehicles by June 30, 2019, or make additional payments to the environmental mitigation trust.
Volkswagen also said it made an agreement with the attorneys general of 44 states, Puerto Rico and the District of Columbia to settle existing and potential state consumer protection claims for about $603 million.
The Justice Department is still "aggressively pursuing the criminal investigation both of the company involved and the individuals" responsible for installing software on tens of thousands of diesel vehicles that defeated emissions tests, Yates told reporters in Washington.
Federal regulators and Justice Department lawyers also are pressing ahead in a lawsuit to force Volkswagen to pay a civil penalty, to fix or repurchase nearly 90,000 other diesel cars and to take steps to ensure such cheating doesn't happen again.
VW said the agreements were not an "admission of liability." Chief Executive Matthias Mueller called the agreements a "significant step forward."
"We know that we still have a great deal of work to do to earn back the trust of the American people," he said in a statement. "We are focused on resolving the outstanding issues and building a better company."
California Atty. Gen. Kamala Harris said in a statement that VW deceived California consumers and "flagrantly" violated state environmental and consumer protection laws with its "defeat devices," illegal software that was installed in the diesel vehicles to cheat on emissions tests.
The agreement also allows the California attorney general, Air Resources Board and EPA to seek civil penalties and "further injunctive relief."
The scandal broke last September when the state Air Resources Board and the EPA said they had found that VW had embedded the software in certain 2.0-liter diesel vehicles. In regular driving, they said, the vehicles spew up to 40 times the legally allowed amount of nitrogen oxide, but the software enables the cars to sense when they are being tested and emit far less pollution at that time.
The state Air Resources Board will receive and direct about 14.1%, or $380 million, of the $2.7 billion VW is required to put into an environmental program trust. Those funds will go toward environmental protection in California.
California also will see 40%, or $800 million, of the $2 billion VW is required to spend on promoting zero-emissions vehicles through activities such as research or infrastructure development. Plans for that money will be subject to the Air Resources Board's approval.
In a twist, that stipulation could end up helping competitors that make electric cars, such as Tesla and General Motors. According to court documents, VW's investment can include money toward fast-charging facilities that could be utilized by all vehicles with non-proprietary connectors. VW recently said it would create more than 30 electric car models by 2025.
Federal officials said they decided to settle the allegations over the 2-liter vehicles before other aspects of the civil case, including what is expected to be a substantial civil penalty, because they wanted to quickly address the pollution problem.
Analysts said that although the automaker still has a long road ahead to repair its reputation, a turnaround in consumer sentiment is possible -- and likely. Other automakers, such as Toyota Motor Corp. and GM, have bounced back from high-profile scandals.
"This was a blip – a major blip, certainly – but the consumer seems to have a pretty short memory about these things," said Jack Nerad, executive market analyst at Kelley Blue Book. "I think they go back to being a car company that's pretty well respected globally."
A preliminary approval hearing for the proposed settlement agreements will be held July 26.
Masunaga reported from Los Angeles and Wilber from Washington.
9:18 a.m.: This article was updated with information from a Justice Department news conference.
8:09 a.m.: This article was updated throughout with Times staff reporting.