UPDATED: 6/28/16 1:25 pm ET – adds detail on criminal probe
WASHINGTON — Volkswagen's decision to cheat on the 2.0-liter diesel vehicles it made the cornerstone of its U.S. vehicle lineup will cost the company nearly $ 15 billion in far-reaching settlements with purchasers of those cars and the U.S. government.
Included in the settlements, announced by U.S. officials this morning, are $ 10 billion for customer buybacks, early lease terminations and customer restitution payments, according to a summary filed in U.S. District Court in San Francisco, which is overseeing the VW litigation.
Under pressure from the EPA, the automaker admitted last September that it had rigged 2.0-liter diesels with software to mask harmful nitrogen oxide emissions during U.S. government lab tests since the 2009 model year, affecting some 500,000 vehicles here. The company later admitted that about 11 million vehicles worldwide had the illegal "defeat device" software, plunging it into an epic scandal that has tanked its stock price and put the company under siege from angry shareholders, regulators, customers and dealers.
Following what Deputy U.S. Attorney General Sally Yates called "one of the most flagrant violations of environmental and consumer laws in our country's history," each owner of an affected diesel will get the repurchase price of their vehicle plus $ 5,100-$ 10,000 depending on the model and year. Lessees who terminate their leases early will receive half of what an eligible owner would receive for an equivalent vehicle.
In addition, VW will deposit $ 2.7 billion in a trust to fund environmental programs nationwide to reduce nitrogen oxide emissions. VW also is required to spend $ 2 billion to "promote" zero emission vehicles such as battery-electric or hydrogen fuel cell vehicles, in addition to what the company has already earmarked for investment into the technologies, according to the summary.
"Using the power of the Clean Air Act, we're getting VW's vehicles off the road and we're reducing harmful pollution in our air pollution that never should have been emitted in the first place," EPA Administrator Gina McCarthy said.
Also on Tuesday, VW announced a separate settlement with at least 44 U.S. states, the District of Columbia and Puerto Rico that will cost at least $ 600 million.
The settlements come after months of intense negotiations overseen by former FBI Director Robert Mueller among Volkswagen, U.S. officials and attorneys representing owners of the affected VW diesels. Parts of the agreement were leaked to the media last week.
Members of the public may comment on the proposed settlements after the documents are filed in federal court. A preliminary approval hearing for the consumer class-action settlement is scheduled for July 26. A consumer website was set up to handle the settlement at vwcourtsettlement.com.
Turning point
The settlements mark a key turning point in the prolonged saga following the disclosure of VW's rigged diesel violations, freeing the automaker from nine months of near silence. Ongoing investigations by the EPA and Department of Justice and, more recently, a court-imposed gag order have barred VW from publicly discussing the matter in-depth.
Meanwhile company has faced a withering assault from investors, vehicle owners, municipalities as well as regulatory and criminal investigators in the U.S. and in Germany.
Yet the settlements filed today don't resolve all claims stemming from the diesel crisis. VW still must reach an agreement with regulators on whether it will offer to buy back 85,000 larger 3.0-liter Porsche, Audi and VW cars and SUVs that emitted up to nine times legally allowable pollution and how much it may face in civil fines for admitting to violating the Clean Air Act. A deal covering the 3.0-liter vehicles may still be months away.
Today's settlements also do not include claims from investors, bondholders and individual consumers who have sued outside of the San Francisco federal court, and VW's U.S. dealers.
VW's U.S. dealers have seen the value of their stores sink amid a freeze on all new and certified diesel vehicle sales imposed shortly after the violations were made public in September. Customers are growing frustrated with the protracted blackout on information about what to do with their vehicles. VW's U.S. sales were down 13 percent through May.
Dealer negotiations
A committee of six VW dealers was organized in March on behalf of VW's 652 U.S. dealerships to attempt to recoup financial damage to dealerships caused by the emissions scandal.
VW agreed in May to begin the talks, but it's unclear what has transpired since. Jason Kuhn, president of Kuhn Automotive Group of Tampa and chairman of the dealer negotiating committee, declined to discuss the talks, citing a confidentiality agreement.
The automaker planned to host a conference call with dealers this afternoon to discuss the settlements and customer communication strategies, according to dealers planning to participate in the call.
Alan Brown, chairman of VW's dealer council, said that the settlements represent the first signs of "closure" since the scandal broke last fall.
"You can't begin to heal until you have closure," he said.
Criminal investigation
VW still may face criminal charges and oversight by an independent monitor, similar to settlements of cases involving General Motors and Toyota Motor Corp. for auto safety issues, a person briefed on the matter said.
"We are aggressively pursing the criminal investigation in this case, both of the companies involved and of the individuals," Yates told reporters, noting that the probe was examining "multiple companies and multiple individuals."
A criminal settlement, which could happen in the coming months, would also include specific measures to ensure that the company would not engage in further cheating.
“We didn’t follow a multiyear, grind-it-out litigation strategy, which would have been counterproductive for Volkswagen,” said Robert Giuffra Jr., the company’s lead lawyer. “We moved with lightning speed to settle with our federal and state regulators and the private plaintiffs.”
'Step Forward'
Volkswagen released its statement on the settlement this morning.
"We take our commitment to make things right very seriously and believe these agreements are a significant step forward," VW CEO Matthias Müeller said in the statement.
"We appreciate the constructive engagement of all the parties, and are very grateful to our customers for their continued patience as the settlement approval process moves ahead. We know that we still have a great deal of work to do to earn back the trust of the American people. We are focused on resolving the outstanding issues and building a better company that can shape the future of integrated, sustainable mobility for our customers."
As part of the settlement with the states, New York will receive more than $ 115 million for air-quality improvement projects, as well as about $ 30 million for the state's coffers, according to the New York Attorney General Eric Schneiderman, who led the investigation by the states. New York will also continue a investigation into the scope of VW's environmental liability.
Leaders of the multi-state probe also included Massachusetts, Connecticut, Oregon, Tennessee and Washington.
"These partial settlements announced today exact a stiff price from Volkswagen for its deception of consumers and the environmental damage it has caused in New York and across the country," Schneiderman said in a written statement.
Schneiderman said that VW's liability with the states could increase substantially.
Bloomberg and Reuters contributed to this report.
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