How Much Should A Buyback Payment Be In VW Dieselgate Scandal Settlement

As the clock winds down to final approval of the VW Dieselgate class-action lawsuit settlement, Consumer Reports (CR) has weighed in on the seeking a change in the manner in which buyback cash is determined.

The class-action settlement agreement proposes using what is essentially the wholesale value of the vehicle at the time of sale, rather than the retail value. The wholesale value of a vehicle can range from hundreds to thousands lower than the retail value. Wholesale cost is the price dealers pay when they buy cars at auction.

Approved after months of tense negotiation last month, the class-action settlement of Volkswagen’s self-inflicted diesel scandal covers buybacks and payments to owners of the 482,000 2.0-liter engines. Also, the proposal takes care of those owners who may have sold their cars to others and provides for remediation of environmental problems caused by the years of diesel cheating that VW carried out.

VW Dieselgate Scandal
The Dieselgate scandal has dragged on and been in the news almost continually for nearly a year. On Sept. 15, 2015, VW announced that it had engaged in a widespread diesel flim-flam on its supposed “clean diesel” vehicles. Court documents and continuing news reports detailed the fact that VW knew its EA 189 four-cylinder engine – originally designed to use urea formaldehyde to clean up emissions – could not meet the tough emissions standards for oxides of nitrogen. The standard went into effect in 2008.

VW engineers opted to use a patched piece of computer coding for its emissions control routines. The software allowed the affected cars to pass the test by resetting the emissions system to “pass” mode when the computer detected a test was being conducted. Among other things, the test watched the wheels, crankshafts, sensors and other control modules (car computers – there are up to a dozen in most vehicles). When the test was detected, the emissions system was tightened up so that the vehicle would meet the standard. At the end of the test, the emissions system was reset to “normal” so that mileage went up and performance increased.

The issue at hand was the fact that VW’s engineering crew knew they had to use the cheatware, as it has been called, because there was no hope of the engine passing the tests. They knew this as early as 2006 when the engine was in final development. Interestingly, the engineering manager initially in charge of development was an import from BMW. Not of the VW culture, he was willing to obtain control technology from outside VW.

That just didn’t work for VW insiders who have a case of myopia when it comes to major vehicular changes. In other words, if it isn’t “invented here,” meaning at VW, it isn’t used. So, after the “outsider” was eased out of his post and the engine became a VW internal project, and the entire urea formaldehyde control portion of the project was junked as the engineers tried to use a lean burn technology to clean things up.

Lean-burn-style tech hasn’t worked in the past, a fact that VW engineers likely knew going in which was the reason they opted to cheat. It’s ironic that for six years the automaker got away with the cheating scheme. It took university researchers, who were looking at VW’s “success” in clean diesel technology, finding the discrepancy and alert authorities and the automaker. VW did try an ineffectual fix but retained the cheating technology. Meantime, the Environmental Protection Agency (EPA) and California Air Resources Board (CARB), also alerted to the problem, issued Notices of Violation to the automaker. Shortly after that, VW admitted it had cheated, and the rest is history.

VW Lawsuits and Buyback Settlement Payments
It didn’t take long for litigation to begin as consumers filed hundreds of lawsuits that were resolved into one class action suit that was under the careful eye of U.S. District Court Judge Charles Breyer of the Northern District of California, headquarter in San Francisco. From early in the process, Judge Breyer urged the parties to find an agreement and set a series of ongoing deadlines to encourage the process. He also held VW’s feet to the fire by also holding a series of public reports in his courtroom as to the progress of the negotiation.

A tentative settlement payment agreement was announced in June. The deal was finalized in July and announced on July 26, 10 months after the Dieselgate drama began unfolding. The agreement spelled out the buyback response scenario. Also, much to the delight of consumer advocates, a mechanism was put in place for leased vehicles. And, there was a mechanism set up to remediate environmental damage caused by Dieselgate.

CR would have buybacks improved for consumers. “They should be revised to increase buyback values and to ensure that all consumers who leased their vehicles – including those who use a company other than the VW Credit service – do not incur any recall-related costs,” the organization said in a statement.

If a Volkswagen owner opts to have the vehicle fixed, provided a fix is approved by regulators, the group wants consumers to be given extra time to determine if they are satisfied with their vehicle’s performance. If it doesn’t meet their approval, consumers should then be given the right to have their vehicle purchased by VW.

And, if the original owner has sold the car, the organization wants not only the second or third owner to benefit from the buyback but believes the first owner should be able to gain a 50-50 split with the owner who is getting the buyback.

There is still nearly a week to go until the public comment period ends. Final approval of the agreement should come on Oct. 18 when Judge Breyer holds a hearing on the matter, the largest-ever buyback program in automotive history. VW has agreed to set aside more than $10 billion to settle buyback claims and more than $5 billion for environmental issues.