Volkswagen Agrees to Fix or Buy Back Dirty Diesel Cars

Volkswagen has reached an agreement with federal and state authorities to repair or replace about 500,000 diesel cars in the U.S., according to court documents released Thursday. The cars were equipped with software designed to deceive emissions tests.

Under the agreement, announced Thursday in U.S. District Court in San Francisco, Volkswagen will pay back an undetermined amount of money to owners of the affected vehicles.

Volkswagen confirmed that an agreement in principle had been reached with the Department of Justice’s Environmental Division, the Environmental Protection Agency and the California Air Resources Board, all with the full involvement of the Federal Trade Commission.

An agreement on the basic features of a deal had been reached in a class action suit brought by car owners, the company said, and that agreement will be incorporated in a comprehensive deal in the coming weeks.

Volkswagen reported that for 2015 it took a US$18.2 billion charge related to the emissions recall, for technical modifications, customer-related measures and legal costs.

Software Chicanery

Federal officials opened an investigation into Volkswagen last year amid allegations that the company had installed software designed to deceive inspectors into recording that its vehicles with two liter diesel engines complied with federal and state emissions standards.

In a civil complaint filed in January, the Department of Justice alleged that Volkswagen had installed in the electronic control module of more a half million 2.0 liter vehicles and 80,000 3.0 liter vehicles software that automatically sensed when the car was being checked for emissions. The software took into account various factors, including the position of the steering wheel, the vehicle speed, barometric pressure, and the duration of the engine operation.

When being tested for emissions, the software tricked the car into producing results that Volkswagen termed “dyno calibration.” When not being tested, the car went into road calibration, emitting nitrogen oxides that were 10 to 40 times the legal limit, depending on whether the car was being driven in the city or on the highway.

The International Council on Clean Transportation in 2014 had commissioned a study by the Center for Alternative Fuels, Engines and Emissions at West Virginia University, and the results showed significant emissions coming from a 2012 Jetta and 2013 Passat.

Volkswagen tried to pass off those results as the result of technical issues based on road conditions, according to documents filed with regulators. It issued a voluntary recall in 2014, but when tests were broadened to include more vehicles, the company finally confessed to installing the software.

The cars involved included numerous versions of the VW Jetta dating back to 2009, the VW Golf dating back to 2010, the VW Passat, the Audi A3 and the VW Beetle.

The FTC last month filed a suit alleging that while those cars were equipped with illegal defeat software, Volkswagen falsely advertised their environmental compliance.

The U.S. agreement has no bearing on proceedings outside of the U.S., Volkswagen said.

Several other carmakers in Europe are suspected or have been accused of engaging in similar conduct, according to the International Council.

Long Road to Rebuilding Trust

Volkswagen will be hurt financially by the settlement, but it was forced to enter such a major buyback deal to salvage its brand reputation, observed Kumar Saha, mobility research manager at Frost & Sullivan.

“The buy-back is definitely one giant apology to its customers,” he told the E-Commerce Times. “Going forward, VW will probably have to bear the extra onus of being absolutely transparent with its products in order to restore customer confidence.”

The agreement does not preclude further investigations into Volkswagen’s conduct in this case.

“This agreement in principle addresses one important aspect of the department’s pending case against VW, namely what to do about the liter diesel cars on the road and the environmental consequences resulting from their excess emissions,” said DoJ spokesperson Wyn Hornbuckle.

“The Department’s other investigations into VW’s conduct remain active and ongoing,” he told the E-Commerce Times.

The multistate probe of Volkswagen will continue, despite the settlement reached in federal court, said New York Attorney General Eric Schneiderman.

“The agreement in principle reached by certain parties to the Volkswagen litigation in federal court does not in any way resolve the consumer and environmental claims of the states, or the states’ claims for injunctive relief,” he maintained.

The multistate coalition, led by New York, includes Connecticut, Massachusetts, Oregon, Tennessee and Washington. The states will “continue to vigorously investigate Volkswagen’s conduct,” Schneiderman said, “and will aggressively pursue the recovery of substantial penalties and appropriate relief.”

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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