Volkswagen to add $1.2 bn to scandal cost

Volkswagen still doesn't have an approved fix for the 562,000 rigged diesel vehicles still polluting US roads

Volkswagen will pay about $1.2 billion to reimburse US dealers for losses caused by the emissions-cheating scheme, a person familiar with the matter said.

Volkswagen will also buy back unfixable used vehicles under the same terms as those given consumers, lawyers for the 652 dealerships said in a statement without disclosing the value of the tentative settlement. The German automaker said separately it agreed to make cash payments and provide additional benefits to dealers to resolve their claims.

The agreement, which raises the amount Volkswagen will pay to resolve US lawsuits to $16.5 billion, removes one obstacle for the carmaker as it seeks to repair its tarnished reputation. While the automaker has already settled with car owners and regulators, Volkswagen still faces investor claims and possible criminal charges. Volkswagen also doesn't have an approved fix for the 562,000 rigged diesel vehicles still polluting US roads.

"The dealers are Volkswagen's front line in this matter, so getting them compensated is critical," Rebecca Lindland, a senior analyst for Kelley Blue Book, said in an e-mailed statement. "Not only do they represent the company to the owners, they're also impacted financially since they're hamstrung on what products they can sell."

The shares gained as much as 2 per cent and were up 1.4 per cent to 122.05 euros as of 9:39 am in Frankfurt trading. The stock has dropped 8.6 per cent this year, valuing the German automaker at 63.2 billion euros ($71.4 billion).

Volkswagen reached a $14.7 billion agreement in July with car owners and US and California regulators that calls for buying back or fixing 480,000 vehicles with 2-litre engines.

The company is also on the hook for $603 million it agreed to pay 44 states.

The automaker still faces more state government claims and investor suits in the US as well as legal claims in Germany and South Korea. Criminal penalties hang over the automaker in all three countries.

US District Judge Charles Breyer, who last month gave preliminary approval to the carmaker's settlement covering the 2-litre models, pressed Volkswagen in court on Thursday for a solution for vehicles with 3-litre engines.

Those models include the Volkswagen Touareg, Porsche Cayenne and Audi Q5.

Breyer ordered Volkswagen to file a plan for fixing the 3-litre engines, and proof that it works, to regulators by October 24 and report back to him on November 3. "We have a pretty good idea how it's going to end, but not sure how it will get there," Breyer said in San Francisco federal court, referring to the goal of getting the cars off the road.

Auto dealers and resellers sued Volkswagen in class actions alleging fraud and false advertising.

Volkswagen was also sued by a few franchise dealerships this year who accused the carmaker of fraud for installing the pollution-control cheating devices in diesel vehicles and sticking them with continuing losses by failing to fix the problem for months.

Dealers are angry because they invested heavily in new, large stores in hopes of seeing the brand sell 800,000 vehicles a year, a goal set by former Volkswagen Chief Executive Officer Martin Winterkorn. The carmaker's namesake brand sold 349,440 cars and light trucks in the US last year. Volkswagen brand's sales fell almost 14 per cent through July while industry-wide deliveries rose 1.3 per cent, according to researcher Autodata. Volkswagen's market share dropped to 1.7 per cent from 2.1 per cent, Autodata said.

"These 652 mostly small business owners were blindsided by the diesel emissions scandal and have seen the value of their businesses plummet," lawyer Steve Berman said in a statement.

Dealers also got a commitment from Volkswagen to lower prices to help them sell more vehicles, said Alan Brown, a partner in a dealership in Lewisville, Texas, and chairman of Volkswagen's US dealer council. The automaker will also widen the range of vehicles US dealerships can offer, he said.

"Not only will the dealers be satisfied with the settlement, we are getting the product we've been asking for," Brown said in a phone interview. "Volkswagen is looking at this with a volume mindset."

Since the US Environmental Protection Agency has yet to approve any of Volkswagen's proposed remedies, it could be years before any of the vehicles are taken off US roads, a possibility that may increase penalties. The company has earmarked 18 billion euros to cover the costs of the scandal. Most of the 11 million cars equipped with the defeat devices were sold in Europe, where a fix for some of the cars has been approved.