The US government and Volkswagen have agreed to a deal totalling around US$14.7 billion ($20 billion) to settle most of the government legal action over the automaker's use of emissions testing defeat devices on half-a-million diesel cars sold in the States.
Just over US$10 billion ($13.6 billion) of the settlement will be set aside for compensation, buybacks and fixing vehicles. Volkswagen is prevented from selling or exporting repurchased vehicles unless fixes are approved and applied to those cars.
Owners of affected vehicles may opt for a buyback or lease termination. Volkswagen will buy back affected cars for between US$12,500 ($17,000) and US$44,000 ($60,000) depending on the vehicle's mileage, options, and resale value just prior to news of the 'dieselgate' scandal emerging.
Vehicles bought with the aid of a Volkswagen-approved loan are entitled to loan forgiveness, while those purchased with a third-party loan will receive 130 percent of their buyback entitlement.
Compensation of between US$5,100 ($6,900) and US$10,000 ($14,000) will be paid to those who choose the buyback option. Compensation will also be set aside for owners who sold their cars prior to the dieselgate scandal becoming public knowledge.
Lessees can choose to have their leases terminated without penalty, and are entitled to half of the compensation of equivalent owners.
If owners and lessees decide to keep their cars, Volkswagen will fix it for free once, if and when regulatory approvals are agreed upon. The cost of today's agreement could be significantly less than US$14.7 billion if a high proportion of owners and lessees decide to keep their vehicles.
Today's deal settles numerous pieces of litigation between Volkswagen and the United States' Department of Justice (DOJ), the state of California, and various class actions regarding the defeat-device software installed with the 2.0-litre EA189 turbo-diesel engine.
Volkswagen has also settled a deceptive advertising suit filed by the US Federal Trade Commission regarding the "clean diesel" campaigns run by the company.
According to the DOJ, this settlement doesn't include all "claims for civil penalties", criminal liability, or the issues relating to the 3.0-litre turbo-diesel V6 used in Porsche, Audi and Volkswagen vehicles. Litigation filed by dealers and investors also falls outside of today's settlement.
As part of the deal, Volkswagen will start an environmental remediation fund seeded with US$2.7 billion ($3.7 billion) over three years to help mitigate the effects of the extra oxides of nitrogen (NOx) that its vehicles have illegally pumped into the air.
The German car maker will also spend US$2 billion ($2.7 billion) over ten years on promoting electric vehicles, with money that going towards "infrastructure, access and awareness initiatives".
Although a deal has been agreed, it still needs formal judicial approval, with a hearing scheduled for July 26. Assuming everything goes as planned, buybacks and lease terminations will begin in October this year.
The company also reached an agreement with the attorneys general of 44 US states, as well as the District of Columbia and Puerto Rico, settling various consumer protection claims at a total cost of US$603 million ($820 million).
Not long after the company publicly admitted that it had installed emissions testing defeat devices in around 11 million cars worldwide with the EA189 diesel engine, it set aside 16.2 billion euros ($24.2 billion) to deal with litigation, fines and remediation work.