Volkswagen will repair or buy back polluting US diesel vehicles and pay owners up to £7,500 under a £11bn deal to settle lawsuits stemming from its emissions cheating scandal, a source close to the talks has said.
The figure will be the largest car industry scandal settlement in US history and a huge step in Volkswagen’s efforts to address the legal fallout from its admission that its vehicles were designed to fool emissions tests.
The €14.7bn deal sets aside $10bn to repair or buy back around 475,000 polluting VWs with two-litre diesel engines and to compensate each owner with an additional payment of between 5,100 and 10,000 dollars, the source, who was briefed on the talks, said.
The deal will not be filed in court until Tuesday and a judge has ordered lawyers not to talk about it before then.
How VW would repair the vehicles to bring them into compliance with clean air laws has not yet been finalised, the person said.
Owners who choose to have the German car maker buy back their vehicles would get the clean trade-in value from before the scandal became public on September 18 2015.
The average value of a VW diesel has dropped 19% since just before the scandal began. In August last year, the average was $13,196 (£10,000) and this May it was $10,674 (£8,000), according to Kelley Blue Book.
Volkswagen will also offer to fix the cars free, but any repair that improves the pollution controls is likely hurt acceleration and fuel economy. Volkswagen marketed the cars as both more fuel efficient and better performing that those with regular petrol engines.
The settlement still requires a judge’s approval before it can go into effect. Owners can choose to decline Volkswagen’s offer and sue the company on their own.
The deal also includes $2.7bn (£2bn) for environmental mitigation and another two billion for research on zero-emissions technology, the source said.
Don Marron, a banker from Allentown, Pennsylvania, who owns a 2012 Jetta SportWagen diesel, said he was glad Volkswagen was offering more compensation than earlier reports had suggested.
But he wants assurance that if Volkswagen fixes his car but he does not like the way it performs, the company will still buy it back. And if he keeps his car and saves VW money, he wants compensation.
“At this moment, I don’t know anything more than I did a couple of months ago,” he said.
The scandal erupted in September when it emerged that VW had fitted many of its cars with software to fool emissions tests and had put dirty vehicles 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. Car owners and the US Department of Justice sued.
VW is still facing billions more in fines and penalties, a lawsuit by state attorneys general and potential criminal charges.
The settlement also does not include another 90,000 three-litre Volkswagen diesels, which had another version of cheating software.
In April VW took an $18.2bn (£13.7bn) charge to cover the cost of the global scandal, which includes a total of 11 million vehicles worldwide.
The company has admitted developing sophisticated software that determined when the cars were being tested by the United States Environmental Protection Agency (EPA) on a treadmill-like device called a dynamometer and turned on the pollution controls. Once all wheels began spinning and the steering wheel was turned, the controls were turned off.
The company, which knew the EPA’s testing routine, got away with the scam for seven years before being caught by the International Council on Clean Transportation, which hired West Virginia University to test a VW in real roads conditions.