As the California Air Resources Board (CARB) rejected a proposal from Volkswagen on how to modify some of the vehicles included in “Dieselgate,” the newest consumer survey from buyer intelligence firm Autolist.com indicated 50 percent of impacted owners are satisfied with the reparations payments.
Autolist.com also highlighted 49 percent of scandal-affected owners plan to take advantage of VW’s buyback offer, which is all part of the automaker’s nearly $15 billion settlement with the Environmental Protection Agency, the Federal Trade Commission and the Justice Department.
Site officials highlighted some comments from VW diesel vehicle owners who participated in the survey. The assessments might be welcomed to franchised dealers who will be on the front lines of unwinding contracts and making repairs once a solution is finalized.
“I think that the fact that they are offering a settlement to the affected customers is a good display of gratitude and empathy for customers,” one participant said.
Another surveyed owner said, “I don’t feel cheated. May car will get fixed when they come up with a resolution, but I will also get cash back. I hold no anger towards Volkswagen.”
Also in the positive column, this participant added, “I love my Golf TDI and I am upset that all of this emission scandal has happened to Volkswagen. I hold no anger toward Volkswagen.”
Well, that last commenter doesn’t quite hold the same viewpoint as some others that Autolist.com mentioned. Site officials mentioned a trio in particular that might make VW dealers cringe.
“While I feel like the settlement is better than nothing, it will not make me whole,” one VW diesel owner said. “I definitely don’t think that I would purchase a VW in the future because of this scandal.”
The view from another participant might result in that particular VW owner going to the dealership of a foreign-badge competitor.
“I always thought of VW as a very honest company,” the owner said. “I paid a significantly higher amount for my TDI thinking it would be better for the environment. I will stick with Hondas and Nissans from now on.”
Another participant wants more than just compensation.
“The executives up to the highest levels who allowed this to happen should be fired and prosecuted and, if convicted, sent to jail,” the owner said.
The sentiment of those last three owners are likely part of the group that dragged down survey figures showing how VW owners felt about the brand before and after the situation came to light. Here are the Autolist.com survey metrics:
| |
Before Scandal
|
Today |
Difference |
| Unfavorable |
7 percent |
34 percent |
up 26 percent |
| Indifferent |
15 percent |
28 percent |
up 13 percent |
| Favorable |
79 percent |
39 percent |
down 39 percent |
Latest regulator development in California
About the time Autolist.com released its survey findings, CARB rejected proposed recall plans submitted by Volkswagen/Audi and Porsche for repair of undisclosed Auxiliary Emission Control Devices (AECDs) and defeat devices in 3.0 liter, diesel vehicles for model years 2009 through 2016. Officials indicated this decision impacts about 16,000 3.0 liter diesel Volkswagens, Audis and Porsches sold in California.
CARB staff said it has determined that the proposed recall plans submitted by the OEMs are incomplete and deficient in a number of areas, including:
• Adequately describe the nonconformities and undisclosed AECDs/defeat devices on the affected vehicles
• Sufficiently describe the remedial procedure for affected vehicles
• Provide a meaningful estimated capture rate in California
• Specify the system by which VW will ensure the availability of sufficient repair parts to institute the proposed fixes
• Contain the impact of proposed fixes on fuel economy, drivability, performance and safety
• Describe the impact of repairs on emissions, particularly average noncompliance emission levels, average emission reductions per pollutant, and an average emission level after proposed fixes
• Demonstrate how the proposed fixes are designed to correct the nonconformities
• Provide onboard diagnostic system demonstration data
• Demonstrate how the plan is designed to correct the nonconformities in an expeditious manner
• Provide sufficient detail for GARB to evaluate the feasibility and success of the proposed plan
CARB, in conjunction with EPA, added in a letter that will continue the on-going technical discussions with the automakers through the enforcement process to ensure “a legally and technically acceptable resolution is reached which fully mitigates the excess emissions.”
The Zika virus, Hillary Clinton’s emails, global warming and the presidential election.
Each of these current events/issues has a significantly higher rate of general public awareness than does the Takata recall, according to Kelley Blue Book.
A study from KBB parent company Cox Automotive found the public had lower awareness of the Takata recall (52 percent) than any other issue/current event examined.
Meanwhile, awareness of Zika is at 84 percent, Clinton’s emails is at 87 percent, global warming is at 83 percent and the presidential election is at 95 percent.
Certainly all important issues, but the same certainly could be said for the Takata issue.
That perhaps makes the significant gap in awareness or concern around Takata all the more striking — especially considering the historic gravity of the situation.
“The airbag recall isn’t getting the kind of media coverage these other issues are getting, and it’s not an inherently interesting or dramatic topic,” KBB senior analyst Karl Brauer said in comments emailed to Auto Remarketing. “Ironically, it has a far higher potential to negatively impact the average consumer than any of these other high-profile issues.”
As of June 2, more than 32 million vehicles have been recalled because of the Takata airbag issue, KBB said.
If you took the next five largest recalls from the past 20 years, their combined number of vehicles impacted would not reach that level, according to the KBB analysis.
The Takata issue is also one that impacts 33 brands.
Yet less than a quarter of the people surveyed found it to be a very or extremely important issue.
And here’s the kicker: Even among the people who are familiar with the Takata situation, less than a third are very concerned or extremely concerned about it.
That compares to 49 percent who feel that way about Zika, 78 percent regarding the presidential election and 79 who are very/extremely concerned about terrorism.
“Consumer opinions on the Takata airbag recall seem to be another unfortunate case of people thinking ‘it won’t happen to me,’ but this is easily the largest, most expensive automotive safety issue in U.S. history,” Brauer said in a news release.
“In fact, one in eight vehicles on the road are affected by this massive recall,” he added, citing a calculation via Experian data on vehicles in operation, “yet 33 percent of those surveyed don’t know if they are impacted.
“It is vital that all households look up their vehicle’s status on the National Highway Traffic Safety Administration (NHTSA) website safercar.gov and check with their manufacturer,” Brauer said. “In vehicles impacted by the Takata recall, the front airbags of the vehicle that are intended to protect riders in the event of a collision, may actually wind up causing injury and/or death by deploying incorrectly.”
While circling back as to how current wholesale price levels might impact movements during the second half of the year, Cox Automotive chief economist Tom Webb acknowledged scores of vehicles currently are sitting at auction because they have an open recall and cannot be sold. The situation might become even more obvious depending on how many current Volkswagen diesel owners opt to dispose of their units as a part of the automaker’s ongoing rectification of what’s been dubbed in some circles as “Dieselgate.”
Of course, there are vehicles from a wide array of badges that can’t go down the lanes, which Webb indicated is “obviously extremely unfortunate because we’ve had some very good pricing in the market now.
“When they’re available for sale, you’re not only fighting the seasonal trend but also probably a cyclical trend downward, too. It’s been extremely unfortunate, and I know everyone would rather have those units available, but that’s simply not possible,” Webb continued when he hosted his quarterly conference call soon after the latest Manheim Used Vehicle Value Index was released.
Unlike the VW situation where the OEM and federal regulators continue to collaborate on an approved repair, other open recalls are not triggering as much of a public outcry but still are causing issues for auctions, consignors and dealers.
“For many of them, the parts are not readily available so they are not going to come back into the market very quickly,” Webb said. “There is some concern that if you were able to wave a magic wand and fix all of these open recall units and push them on the market that would have a depressing impact on price. But the fact of the matter is there is no magic wand and they will come back into the market at a relative steady rate."
As previously reported by Auto Remarketing, Manheim said that wholesale prices are now at their highest level in more than four years after rising every month in the second quarter. Webb attempted to project what the current level might do to price movements later in the year, especially in autumn as off-rental activity ticks higher in conjunction with off-lease volume that’s already on the rise.
“I would say frankly I’m a little surprised by the strength in wholesale prices so far this year,” Webb said after the latest Manheim data indicated the Manheim Index now is only 1.3 percent away from the record high reached in May 2011.
“As anticipated, the volumes have been quite strong and they pretty much have been in line with what we’ve expected,” he continued. “There are of course some units sitting at auction that you can’t sell because of recalls. One could argue that might have had a positive impact in terms of prices, but that’s arguable.
“Almost everyone is expecting that prices will decline. To get to what we’ve expected for the year, we’re going to have to have a steeper fall off,” Webb went on to say.
As parts for recalls become available, it means the service bays at franchised dealerships are humming. Webb pointed out what that situation means for auctions beyond just bringing down the sales hammer each week.
“The amount of reconditioning work that is done varies quite a bit by consignor and the types of vehicle segments that they’re selling,” Webb said. “Given the shifts we’ve had, that favors the recon environment from our standpoint. Off-lease units that get into the open auction process are probably going to have more recon attached if they get to the physical auction.
“But in terms of the practices of the individual consignors, I don’t think they have substantially changed,” he continued.
“Where we have seen some changes is there is probably better utilization where buyers who are buying units and doing post-recon work at our facilities,” Webb went on to say. "Some of that has been because we’ve been better at marketing it as well as related to the recalls because the dealers’ service facilities are backed up with their own recall activity. Therefore, to the extent they can get the work done at auction, they avail themselves for that opportunity.”
Also of note, Webb quickly touched on conversion rates and what they might do to the wholesale market going forward.
“The conversion rates at auction were not very good in March and early April, but they’re now back to normal or even a little bit higher than normal, which is a good thing,” he said.
Buyer intelligence firm Autolist.com released data just before the Fourth of July holiday that shows that the $14.7 billion settlement for some Volkswagen diesel vehicle owners will compensate them “handsomely” for being dragged into what analysts coined as “Dieselgate.”
The study, which is based on more than 37 million data points, described an “optimistic” story for VW owners. Analysts determined nominal vehicle value has decreased an average of $2,017 since the scandal, which is far less than the $5,100 to $10,000 owners will receive in settlement reparations payments alone.
Furthermore, Autolist.com found that expected prices for scandal and non-scandal vehicles have recovered to 4.8 percent and 1.5 percent below expectations, respectively, up from March lows of 7.4 percent and 2.8 percent.
However, despite the price stabilization and potentially rich payout, analysts pointed out that VW vehicles are still not selling at the market rate.
Autolist.com indicated time on market is at record highs, with scandal and non-scandal vehicles at 189 percent and 31 percent above average, respectively.
Autolist.com analysts pointed to brand perception damage and the lack of a viable fix for the scandal-affected vehicles as the primary drivers for the slow used sales.
“So while owners may ultimately have a chance to unload their cars and come out ahead, it may be a little while before a buyer comes along willing to make the purchase,” Autolist.com said.
Additional settlement impact
While dealerships will be handling the major chores if VW diesel vehicle owners want a different model, Diesel Technology Forum executive director Allen Schaeffer explained the impact stemming from another part of the settlement — the $2.7 billion mitigation trust established that’s meant to reduce excess emissions of oxides of nitrogen (NOx).
“Today, the most proven, available opportunity for mitigating excess emissions of NOx comes from the accelerated turnover of older heavy-duty trucks, buses and off-road machines and equipment to newer technology clean diesel models. The newest generation tractor-trailer sized trucks have 95 percent fewer emissions of NOx compared to models built before 2010 while a 2014 model year large construction machine — such as an excavator— yields a 99 percent reduction in NOx emissions relative to a previous generation of equipment,” Schaeffer said.
“A commercial Class 8 truck manufactured since 2010 typically traveling 125,000 miles per year would save 875 gallons of fuel and reduce NOx emissions by 1.1 metric ton compared to older models. In addition to the proven clean air benefits, the new technology clean diesel engine would save the trucker $2,400 annually (at fuel prices of $2.75 per gallon), and result in 8.9 fewer metric tons of carbon dioxide (CO2) emissions,” he continued.
A recent study by the Martec Group for the Diesel Technology Forum showed that nationwide, from 2011 to 2015, compared to pre-2010 engines, new technology heavy-duty clean diesel engines that power commercial vehicles have removed approximately 7.5 million tons of NOx. Schaeffer computed these savings are equivalent to the NOx emissions from all light-duty vehicles generated over a two-year period. In addition, he added the CO2 savings are equivalent to removing 6.1 million light-duty vehicles from the road for an entire year.
“The rate of adoption of the newest technology clean diesel truck engines is progressing well but ultimately depends on economic and business conditions,” Schaeffer said.
As of the end of 2015, about one-quarter of all commercial vehicles (GVW 3-8) on the road are the newest generation (2011 model year and newer) clean diesel technology vehicles, according to Diesel Technology Forum analysis based on IHS Automotive 2015 vehicles in operation data.
“Accelerating the turnover to the new technology clean diesel engines will achieve substantial NOx reductions. Significant air quality benefits will accrue to communities across the country if more of these older commercial vehicles are replaced with new or newer diesel engines,” Schaeffer said.
Schaeffer also mentioned the VW settlement also provides some portion of the mitigation funding for the Diesel Emissions Reduction Act (DERA) program for eligible projects that encourage the owners of older vehicles and equipment to purchase new or replace older engines with newer technology.
“The DERA program has a proven record of successfully modernizing and upgrading older vehicle engines and equipment in communities across the country,” he said.
Schaeffer closed with one more point.
“The diesel engine is the most energy efficient internal combustion engine. It is a proven technology and its unique combination of efficiency, power, reliability, performance, low-emissions and suitability for using renewable fuels ensures a place for diesel technology to help meet the demands of a global economy,” he said.
“Consumers will continue to find the new generation of clean diesel cars, trucks and SUVs a competitive choice to meet their personal transportation needs, and clean diesel technology is a key strategy to achieving current and future energy and climate goals,” Schaeffer went on to say.
The National Highway Traffic Safety Administrated shared an urgent message on Thursday that applies to dealerships who might have older Honda and Acura vehicles in their inventories or auctions who might be sending these units across the blocks.
NHTSA officials said new test data on a particular subset of defective Takata air bag inflators in certain model-year 2001-2003 Honda and Acura vehicles show a far higher risk of ruptures during air bag deployment, prompting an urgent call to ensure that unrepaired vehicles in this population are found and fixed before they cause further injuries or fatalities.
The higher-risk inflators are in certain 2001-2003 Honda and Acura vehicles, including:
2001-2002 Honda Civic
2001-2002 Honda Accord
2002-2003 Acura TL
2002 Honda CR-V
2002 Honda Odyssey
2003 Acura CL
2003 Honda Pilot
Officials explained the air bag inflators in these particular vehicles contain a manufacturing defect that greatly increases the potential for dangerous rupture. Testing of the inflators from these vehicles shows rupture rates as high as 50 percent in a laboratory setting. Ruptures are far more likely in inflators in vehicles that spent significant periods of time in areas of high absolute humidity — particularly Florida, Texas and other parts of the Gulf Coast.
By comparison, NHTSA indicated testing performed on similar-age recalled Takata inflators that do not have the same manufacturing defect shows rupture rates at less than 1 percent.
The vehicles in question were recalled between 2008 and 2011. The regulator noted Honda has reported that more than 70 percent of this higher-risk population of vehicles has already been repaired, but approximately 313,000 vehicles with this very dangerous defect remain unrepaired.
“The risk posed by the airbag inflators in these vehicles is grave, and it is critical they be repaired now to avoid more deaths and serious injuries,” NHTSA said.
NHTSA and Honda are asking for the news media and public’s assistance to find the remaining unrepaired vehicles. They instructed drivers of these vehicles to visit SaferCar.gov immediately to check whether their vehicle has any outstanding safety recalls. Those that do should contact their nearest dealer to schedule a no-cost immediate repair. Replacement parts for these vehicles are available immediately.
“The air bag inflators in this particular group of vehicles pose a grave danger to drivers and passengers that must be fixed right away,” NHTSA administrator Mark Rosekind said.
“Drivers should visit SaferCar.gov or contact their local dealer to check whether their vehicle is affected,” Rosekind continued. “If it is, they should have the vehicle repaired immediately for free at an authorized dealer. We commend Honda for taking additional actions to get these vehicles repaired.”
Though the vehicles are already under recall, NHTSA ordered Takata to perform additional ballistic testing following recent reports of ruptures. Eight of the 10 confirmed U.S. fatalities due to Takata ruptures — including the most recent in Fort Bend County, Texas — were in this population of vehicles.
Officials highlighted Honda has committed to immediately taking additional actions to enhance their efforts to find and fix recalled vehicles. Honda will provide additional information about their efforts. NHTSA has also directed Honda to report weekly on the progress of vehicle repairs.
NHTSA is also expanding its own direct consumer outreach, including a paid media campaign and a series of outreach events in high-risk areas this summer. NHTSA has also engaged the vehicle insurance industry to help locate the unremedied vehicles.
Officials recapped that nearly 70 million Takata air bag inflators are or will be under recall by 2019, in the largest and most complex auto safety recall in U.S. history. They explained a combination of time, environmental moisture and fluctuating high temperatures contributes to the degradation of the ammonium nitrate propellant in the inflators. NHTSA stressed that such degradation can cause the propellant to burn too quickly, rupturing the inflator module and sending shrapnel through the air bag and into the vehicle occupants.
Toyota Motor Sales USA announced late on Tuesday that it is conducting a safety recall of approximately 482,000 vehicles to correct an issue with the curtain shield air bags.
The action by Toyota is unrelated to the ongoing Takata airbag recall.
Included in the campaign is the Toyota Prius from the 2010 through 2012 model years, the Toyota Prius Plug-In Hybrids from the 2010 and 2012 model years as well as the 2011 and 2012 Lexus CT 200h.
The automaker explained the involved vehicles are equipped with curtain shield air bags (CSA) in the driver and passenger side roof rails that have air bag inflators composed of two chambers welded together. The OEM indicated some inflators could have a small crack in the weld area joining the chambers, which could grow over time, and lead to the separation of the inflator chambers.
“This has been observed when the vehicle is parked and unoccupied for a period of time,” officials said. “If an inflator separates, the CSA could partially inflate, and, in limited circumstances, one or both sections of the inflator could enter the interior of the vehicle.
“If an occupant is present in the vehicle, there is an increased risk of injury,” Toyota went on to say.
The company added that all known owners of the involved vehicles will be notified by first class mail. Toyota and Lexus dealers will install retention brackets on the curtain shield air bag inflators at no cost.
“These retention brackets are designed to prevent the inflator chambers from entering the vehicle interior if separation occurs,” officials said.
As an industry compliance expert tried to explain how complicated it might be to unwind installment contracts and leases, NADA Used Car Guide confirmed that its values are being used to generate the figures associated with the Volkswagen diesel emissions settlement announced on Tuesday. The data denotes how much the OEM will pay owners to buy back vehicles or the additional cash payment beyond the automaker subsidizing the cost of regulator-approved modifications.
Depending on what the vehicle owner decides to do, that payment can range from $5,100 to someone who keeps and has repairs done on a 2009 VW Jetta Sedan TDI or Jetta SportsWagen TDI to $44,176 to an individual who elects for the OEM to buy back a 2015 Audi A3 TDI Prestige. Regulators explained the estimates are based on these vehicles’ retail value as of September 2015 — just prior to the public disclosure of the emissions issue.
For vehicle lessees, the settlement payment can range from $2,634 for someone leasing a 2011 VW Jetta Sedan TDI to $4,899 for the lease holder of a 2015 Audi A3 TDI Prestige, according to a document NADA Used Car Guide sent to Auto Remarketing on Tuesday afternoon.
The complete payment rundown for vehicle owners and lessees involved in this matter can be viewed here.
No matter what the consumer chooses, Environmental Protection Agency administrator Gina McCarthy shared a message that ought to resonate with used-car managers in the dealership world as well as auction managers in the wholesale space.
“Volkswagen is required with the cars they bring back to actually fix them according to a fix that EPA would approve to scrap them. There’s also in here the encouragement for the recycling of the scrap that can be reused,” McCarthy said when she and representatives from the Federal Trade Commission and the Justice Department announced the settlement with VW on Tuesday morning.
“These are not going to be shipped elsewhere in their current form. This is about taking care of the air pollution that was emitted here in the U.S., but we’re not shipping that air pollution elsewhere,” McCarthy continued.
While the settlement arrived Tuesday as mandated by a U.S. District Court judge, VW had yet to finalize a way to repair nearly 500,000 units with 2.0 liter diesel engines from the 2009 through 2015 model years. According to the settlement, the OEM has until the end of the year to craft the repair.
“We are hopeful that within a six-month window we will have a determination that a fix is possible,” McCarthy said. “If one comes along at any point in time … but really consumers have until May of 2018 to make choices. This is a very big task that Volkswagen is taking on. Individuals will be able to make a decision early on if they want, right after the settlement is effective. But we will also have opportunities for them to think about it and to see if they want the fix instead.
“This is all about consumer choice and making sure they have the time and making sure Volkswagen is meeting their responsibilities to provide the opportunity for a buyback, a lease termination or to get a fix in place that EPA has set a standard for that will be very rigorous. We’re working through those issues now,” she went on to say.
If the vehicle owner doesn’t choose to have it repaired, the challenge turns to VW Credit or the finance company that holds the installment contract or lease to be involved in settling the matters. Auto Remarketing reached out to compliance expert Randy Henrick, who indicated that how the financing-related process is going to unfold remains unclear.
“If you unwind the contracts — as opposed to giving the consumers a cash payment for the reduced value of the vehicle — presumably the customer will have to surrender the vehicle,” said Henrick, who was Dealertrack’s regulatory and compliance counsel for 12 years and now conducts industry consulting at www.autodealercompliance.net.
“The credit reporting would have to indicate an early payoff; nothing adverse to the consumer,” he continued.
“I think the hard part is going to be dealing with all those vehicles and vehicle owners,” Henrick went on to say. “Not sure how lessees and people who sold or traded in their vehicles before (or after) September 2015 are going to be affected. The government will not want these vehicles on the road, so this is just the beginning with a lot of uncertainties.
“I think despite VW’s efforts, it is only the tip of the iceberg,” Henrick added.
That iceberg also includes more significant challenges for Volkswagen to clear. Federal officials added the settlements announced on Tuesday do not resolve pending claims for civil penalties or any claims concerning 3.0 liter diesel vehicles, nor do they address any potential criminal liability.
“I can assure you that our criminal investigation remains active and ongoing. We will follow the facts wherever they go and we will determine whether to bring criminal charges against any companies or individual wrongdoers,” Deputy Attorney General Sally Yates said.
The complete session featuring DOJ, EPA and FTC officials can be viewed in the window at the top of this page or by going here.
Described as a “painful pill to swallow,” Volkswagen is going to have to spend nearly $15 billion to settle with federal regulators and consumers involving vehicles associated with a diesel emissions controversy.
In two related settlements — one with the United States and the state of California and one with the Federal Trade Commission — federal officials said on Tuesday that Volkswagen and related entities have agreed to spend up to $14.7 billion to settle allegations of cheating emissions tests and deceiving customers. They indicated VW will offer consumers a buyback and lease termination for nearly 500,000 units with 2.0 liter diesel engines from the 2009 through 2015 model years that were sold or leased in the U.S.
The automaker agreed to spend up to $10.03 billion to compensate consumers under the program.
In addition, federal officials stated the OEM will spend $4.7 billion to mitigate the pollution from these vehicles and invest in green vehicle technology.
Officials explained the settlements “partially resolve” allegations by the Environmental Protection Agency (EPA), as well as the California attorney general’s office and the California Air Resources Board (CARB) under the Clean Air Act, California Health and Safety Code and California’s Unfair Competition Laws, relating to the vehicles’ use of “defeat devices” to cheat emissions tests.
The settlements also resolve claims by the FTC that Volkswagen violated the FTC Act through the deceptive and unfair advertising and sale of its “clean diesel” vehicles.
Officials added the settlements do not resolve pending claims for civil penalties or any claims concerning 3.0 liter diesel vehicles, nor do they address any potential criminal liability.
The affected vehicles include 2009 through 2015 Volkswagen TDI diesel models of Jettas, Passats, Golfs and Beetles as well as the TDI Audi A3.
2 options to satisfy current owners
The settlements require Volkswagen to offer owners of any affected vehicle the option to have the company buy back the vehicle and to offer lessees a lease cancellation at no cost. Volkswagen may also propose an emissions modification plan to the EPA and CARB, and if approved, may also offer owners and lessees the option of having their vehicles modified to substantially reduce emissions in lieu of a buyback.
Regulators noted that Volkswagen must set aside and could spend up to $10.03 billion to pay consumers in connection with the buy back, lease termination, and emissions modification compensation program. They explained the program has different potential options and provisions for affected Volkswagen diesel owners depending on their circumstances:
—Buyback option: Volkswagen must offer to buy back any affected 2.0 liter vehicle at retail value as of September 2015 — just prior to the public disclosure of the emissions issue. Consumers who choose the buyback option will receive between $12,500 and $44,000, depending on their unit’s model, year, mileage and trim of the vehicle, as well as the region of the country where it was purchased.
In addition, because officials computed a straight buyback will not fully compensate consumers who owe more than their vehicle is worth due to rapid depreciation, the FTC order provides these consumers with an option to have their loans forgiven by Volkswagen.
Consumers who have third party loans have the option of having Volkswagen pay off those loans, up to 130 percent of the amount a consumer would be entitled to under the buyback (such as if the consumer is entitled to a $20,000 buyback, VW would pay off his/her loans up to a cap of $26,000), according to the settlement.
—EPA-approved modification to vehicle emissions system: The settlements also allow Volkswagen to apply to EPA and CARB for approval of an emissions modification on the affected vehicles, and, if approved, to offer consumers the option of keeping their cars and having them modified to comply with emissions standards.
Under this option in accordance with the FTC order, consumers would also receive money from Volkswagen to redress the harm caused by VW’s deceptive advertising.
Regulators went on to mention consumers who leased the affected vehicles will have the option of terminating their leases (with no termination fee) or having their vehicles modified if a modification becomes available.
In either case, under the FTC order, officials insisted these consumers also will receive additional compensation from Volkswagen for the harm caused by VW’s deceptive advertising.
Consumers who sold their TDI vehicles after the VW defeat device issue became public may be eligible for partial compensation, which will be split between them and the consumers who purchased the cars from them as set forth in the FTC order.
Officials pointed out that eligible consumers will receive notice from VW after the orders are entered by the court this fall. Consumers will be able to see if they are eligible for compensation and if so, what options are available to them, at VWCourtSettlement.com and AudiCourtSettlement.com. They will also be able to use these websites to make claims, sign up for appointments at their local Volkswagen or Audi dealers and receive updates.
Consumer payments will not be available until the settlements take effect if and when approved by the court, which may be as early as October, according to regulators.
Under the U.S./California settlement, Volkswagen must achieve an overall recall rate of at least 85% of affected 2.0 liter vehicles under these programs or pay additional sums into the mitigation trust fund. The FTC order requires Volkswagen to compensate consumers who elect either of these options.
Automaker’s assessment of settlement
Volkswagen recapped the settlement details in a news release and chief executive officer Matthias Müller touched on how the OEM reached this point.
“We take our commitment to make things right very seriously and believe these agreements are a significant step forward,” Müller said. “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,” he continued.
The automaker noted that the company and regulators believe that the class settlement as presented to the court will provide a fair and reasonable resolution for affected Volkswagen and Audi customers.
Volkswagen added that it continues to work expeditiously to reach an agreed resolution for affected vehicles with 3.0L TDI V-6 diesel engines.
On April 22, Volkswagen reiterated that it recognized total exceptional charges of 16.2 billion Euro in its financial statements for 2015 for worldwide provisions related to technical modifications and repurchases, legal risks and other items as a result of the diesel matter.
As noted at that time, VW maintained that due to the complexities and legal uncertainties associated with resolving the diesel matter, a future assessment of the risks may be different.
“Today’s announcement is within the scope of our provisions and other financial liabilities that we have already disclosed, and we are in a position to manage the consequences,” Volkswagen chief financial officer Frank Witter said.
“It provides further clarity for our U.S. customers and dealers as well as for our shareholders. Settlements of this magnitude are clearly a very significant burden for our business. We will now focus on implementing our TOGETHER-Strategy 2025 and improving operational excellence across the Volkswagen Group,” Witter went on to say.
Immediate auto industry reaction
Observers from Kelley Blue Book, Autotrader and Edmunds.com all used colorful adjectives to describe their reactions to the settlement VW reached with federal regulators and how the automaker is being asked to remedy the situation with current vehicle owners.
“At nearly tenfold the cost of recent payouts by GM and Toyota this one should hold the record for most expensive automotive settlement for quite some time,” Kelley Blue Book senior analyst Karl Brauer said. “While undoubtedly a painful pill for VW’s accountants and stockholders to swallow, it’s also the most comprehensive and customer-friendly resolution I’ve ever seen.
“Not only will VW diesel owners have multiple compensation options, but the company will also fund environmental efforts and advanced clean air technology to offset its excessive diesel emissions,” Brauer continued. “It’s a huge step toward resolving the issue, though many legal hurdles remain, as does finding a resolution for VW’s customers in markets outside the U.S.”
Edmunds.com director of industry analysis Jessica Caldwell also made some medical analogies when sharing her assessment about the settlement.
“Volkswagen has to swallow a $15 billion pill, but it needs to take this medicine in order to move on,” Caldwell said. “This massive financial hit won’t magically make VW’s troubles disappear overnight, and it still has a long road ahead to repair its reputation among car shoppers.
“The company got a head start earlier this month by announcing a long-term commitment to electrification, but it will be a long time before shoppers will trust VW as an environmentally friendly brand,” she continued. “The good news is that history is on Volkswagen's side. Other automakers have successfully weathered their own high-profile scandals and VW has the resources and infrastructure in place to do the same.”
Autotrader senior analyst Michelle Krebs called Volkswagen's proposed settlement “unprecedented in its dollar amount, but the situation was unprecedented, in that it was not a mistake but a deliberate deception.
“The question remains which option will consumers select,” Krebs added.
And fellow Kelley Blue Book senior analyst Rebecca Lindland noted that “It's a huge settlement for any company, especially involving a non-fatal issue. But this has dragged on long enough and the sooner VW puts this behind them, the better.
“They need to concentrate on launching the product-led renaissance that will revitalize the brand and its reputation,” Lindland went on to say.
Environmental requirements & regulator displeasure
According to the civil complaint against Volkswagen filed by the Justice Department on behalf of EPA on Jan. 4, Volkswagen allegedly equipped its 2.0 liter diesel vehicles with illegal software that detects when the vehicle is being tested for compliance with EPA or California emissions standards and turns on full emissions controls only during that testing process.
During normal driving conditions, the software renders certain emission control systems inoperative, greatly increasing emissions. This is known as a “defeat device.” Use of the defeat device results in cars that meet emissions standards in the laboratory, but emit harmful NOx at levels up to 40 times EPA-compliant levels during normal on-road driving conditions.
The Clean Air Act requires manufacturers to certify to EPA that vehicles will meet federal emission standards. Vehicles with defeat devices cannot be certified.
The settlement of the automaker’s Clean Air Act violations also requires Volkswagen to pay $2.7 billion to fund projects across the country that will reduce emissions of NOx where the 2.0 liter vehicles were, are or will be operated. Volkswagen will place the funds into a mitigation trust over three years, which will be administered by an independent trustee.
Officials indicated that beneficiaries, which may include states, Puerto Rico, the District of Columbia and Indian tribes, may obtain funds for designated NOx reduction projects upon application to the Trustee. Funding for the designated projects is expected to fully mitigate the NOx these 2.0 liter vehicles have and will emit in excess of EPA and California standards.
Regulators emphasized the emissions reduction program will help reduce NOx pollution that contributes to the formation of harmful smog and soot, exposure to which is linked to a number of respiratory- and cardiovascular-related health effects as well as premature death. Children, older adults, people who are active outdoors (including outdoor workers), and people with heart or lung disease are particularly at risk for health effects related to smog or soot exposure. NO2 formed by NOx emissions can aggravate respiratory diseases, particularly asthma, and may also contribute to asthma development in children.
Furthermore, the Clean Air Act settlement also requires VW to invest $2 billion toward improving infrastructure, access and education to support and advance zero emission vehicles. The investments will be made over 10 years, with $1.2 billion directed toward a national EPA-approved investment plan and $800 million directed toward a California-specific investment plan that will be approved by CARB.
As part of developing the national plan, officials said Volkswagen will solicit and consider input from interested states, cities, Indian tribes and federal agencies. This investment is intended to address the adverse environmental impacts from consumers’ purchases of the 2.0 liter vehicles, which the governments contend were purchased under the mistaken belief that they were lower emitting vehicles.
Finally, the FTC settlement includes injunctive provisions to protect consumers from deceptive claims in the future. These provisions prohibit Volkswagen from making any misrepresentations that would deceive consumers about the environmental benefits or value of its vehicles or services, and the order specifically bans VW from employing any device that could be used to cheat on emissions tests.
The FTC sued Volkswagen in March, charging that the company deceived consumers with the advertising campaign it used to promote its supposedly “clean diesel” VWs and Audis, which falsely claimed that the cars were low-emission, environmentally friendly, met emissions standards and would maintain a high resale value.
“Today’s announcement shows the high cost of violating our consumer protection and environmental laws,” FTC chairwoman Edith Ramirez said. “Just as importantly, consumers who were cheated by Volkswagen’s deceptive advertising campaign will be able to get full and fair compensation, not only for the lost or diminished value of their car but also for the other harms that VW caused them.”
The provisions of the U.S./California settlement are contained in a proposed consent decree filed on Tuesday in the U.S. District Court for the Northern District of California, as part of the ongoing multi-district litigation, and will be subject to a public comment period of 30 days, which will be announced in the Federal Register in the coming days.
The provisions of the FTC settlement are contained in a proposed Stipulated Final Federal Court Order filed today in the same court.
“By duping the regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our atmosphere,” said Deputy Attorney General Sally Yates. “This partial settlement marks a significant first step towards holding Volkswagen accountable for what was a breach of its legal duties and a breach of the public’s trust.
And while this announcement is an important step forward, let me be clear, it is by no means the last. We will continue to follow the facts wherever they go,” Yates continued.
And EPA Administrator Gina McCarthy added, “Today’s settlement restores clean air protections that Volkswagen so blatantly violated. And it secures billions of dollars in investments to make our air and our auto industry even cleaner for generations of Americans to come.
“This agreement shows that EPA is committed to upholding standards to protect public health, enforce the law, and to find innovative ways to protect clean air,” McCarthy went on to say.
Volkswagen now has an extra week to finalize the “concrete” proposal to federal regulators regarding how to fix or buy back vehicles included in the diesel emissions controversy.
According to a court document that stated “given the highly technical nature of the proposed settlements in these complex proceedings,” U.S. District Judge Charles Breyer obliged the request for VW to submit its plan on June 28; a week later than the initial deadline of Tuesday set during the last legal proceedings on March 24.
Breyer ruled that the date of the next status conference would remain on June 30 with a hearing on preliminary approval to still be on July 26.
“Now, this proposal may include a vehicle buy-back plan or a fix approved by the relevant regulators that allows the cars to remain on the road with certain modifications or both or even other remedies,” Breyer said according to the court transcript posted after the March session.
While Volkswagen is busy trying to remedy the diesel vehicle situation, the OEM also shared aggressive objectives for a fleet of electric models with leadership in Germany planning to roll out more than 30 new e-vehicles by 2025.
VW said it has an annual electric unit sales target of 2 million to 3 million.
“Volkswagen has always enriched the lives of millions of people all over the world with its brands and products. Our aspiration is to continue that success story and play a leading role in shaping auto-mobility for future generations, too. This will require us — following the serious setback as a result of the diesel issue — to learn from mistakes made, rectify shortcomings and establish a corporate culture that is open, value-driven and rooted in integrity,” VW chief executive officer Matthias Müller said during the presentation of the new strategic direction in Wolfsburg, Germany.
After hearing from VW’s boss, analysts from Kelley Blue Book and Autotrader took a bit of a guarded take on Volkswagen’s new strategy that includes those greater investments into electric vehicles, services and more, as the automaker tries to recover from its emissions crisis. Previously, KBB estimated the diesel vehicle quandary could cost VW more than $7 billion.
“A move to electric vehicles might be a profitable venture in Europe, but such a move would have virtually no effect in reversing Volkswagen’s recent trend in North America in the wake of its emissions scandal,” said Jack Nerad, executive editorial director and executive market analyst for Kelley Blue Book.
“In the short- and even medium-term, EVs just won’t give VW the added volume it needs to regain its lost momentum. Further complicating this is the fact that it is nearly impossible to sell EVs at a profit in the United States,” Nerad continued.
Autotrader senior analyst Michelle Krebs touched on the fact that Volkswagen likely won’t be alone in outlining a similar manufacturing and sales strategy.
“Every automaker will need to shift toward more electrification to meet more stringent fuel economy and emission standards by 2025. The problem is consumers are not buying them in great numbers, and some industry forecasts suggest those numbers will grow but still remain low,” Krebs said.
“Volkswagen’s challenge is exacerbated by the ugly diesel situation that has yet to be fully resolved and the distrust that has generated,” she went on to say. “It’s also not at all clear that Volkswagen loyalists will readily shift from buying VW diesels to VW electric cars. Volkswagen has its work cut out in executing its new strategy.”
Quest Resource Holding Corp. has announced what it believes to be a safe, sustainable, turnkey solution to destroy millions of recalled Takata airbags.
The company’s airbag recycling program, which is being offered to more than 12,000 dealership and automotive aftermarket client locations, is designed with two goals: to prevent recalled items from being sold in the secondary market, and to reduce dealerships’ environmental footprint.
“We believe our easy-to-use solution will help dealerships across North America navigate the uncertainty about what to do with the massive influx of recalled airbags,” said Ray Hatch, Quest’s chief executive officer. “We will help national dealership groups properly handle the recalled airbags by not only destroying them, but also by recycling the recovered plastics and metal and by delivering the certificate of destruction the dealerships need to be reimbursed from the manufacturer.”
After last month’s recall expansion by the National Highway Traffic Safety Administration, the total number of recalled Takata airbags is estimated at upward of 60 million. Dealerships are largely responsible for both managing the removal of and replacing the defective units.
