VW Said to Reach U.S. Deal to Fix Most Tainted Audi Diesels

(Bloomberg) -- Volkswagen AG has reached an agreement with U.S. environmental regulators to fix or buy back around 80,000 Audi, VW and Porsche vehicles with tainted 3-liter diesel engines, nearing a resolution on a key aspect of the emissions-cheating scandal, people familiar with the discussions said.

Under an accord with the Environmental Protection Agency and California’s Air Resources Board, Volkswagen would get the go-ahead to fix some 60,000 vehicles and offer to repurchase about 19,000 older models that would be too complex to repair, said the people, who asked not to be identified because the talks are confidential. The recall plans involve a simple software update, and avoiding a full buyback of all the cars would save the company about $4 billion, the people said.

While Volkswagen has agreed to pay an industry-record $16.5 billion to resolve issues involving about half a million 2-liter diesel cars, it has struggled to reach an agreement over the larger engines. A deal would be a significant step toward emerging from a crisis that erupted last year when the company admitted that about 11 million diesel cars worldwide were outfitted with a “defeat device” to game U.S. environmental tests. 

The court handling the case hasn’t approved a deal, so changes could still be made ahead of a court hearing on Nov. 30. Volkswagen also doesn’t have an agreement with the owners of the 3-liter cars who have sued the company or with the Federal Trade Commission, which filed a lawsuit against the company for false advertising. Both the steering group for the car owners and the FTC are demanding that Volkswagen offer to buy back all of the tainted vehicles, which the carmaker is seeking to avoid, the people said.

Close Cooperation

“Volkswagen continues to work closely with the EPA and CARB to reach an agreement on an approved resolution” for the affected 3-liter vehicles, said Mark Clothier, a spokesman for Audi, which developed the engine and is handling the talks. Before the hearing at the end of the month, “the court has ordered that these discussions remain confidential.”

Spokespeople for EPA, CARB and the FTC also declined to comment. The affected models include diesel versions of the VW Touareg, Porsche Cayenne and Audi Q5, Q7 and A8.

“While an agreement between the EPA and Volkswagen may address some of the environmental damage, it does not hold the company accountable for the harm caused to consumers,” Elizabeth Cabraser, lead attorney for the consumer plaintiffs, said in an e-mailed statement. “Any resolution must grant these consumers similar benefits -- including a choice between a buyback or a fix if approved by regulators -- as were offered to class members in the 2.0-liter vehicle litigation.”

Volkswagen shares erased earlier losses to close up 1.3 percent at 118.50 euros in Frankfurt trading, narrowing its decline since the scandal broke in September 2015 to 27 percent.

Customer Compensation

In addition to the unresolved 3-liter issue, the carmaker is still under criminal investigation in the U.S. and on the hook for outstanding civil claims from several states. It also faces hundreds of investor lawsuits in Germany and is the subject of a criminal probe there as well. 

The court decision over 2-liter engines can still be appealed. So far, about 75 percent of owners of those vehicles have registered to participate in the settlement. To avoid additional penalties, the company has a target of getting 85 percent of those cars off U.S. roads.

In the 3-liter discussions, the two sides have yet to agree on how much Volkswagen should compensate customers to get their vehicles fixed, the people said. Under the settlement for the smaller vehicles, Volkswagen agreed to pay owners as much as nearly $10,000 to have their cars repaired, while lease-holders will get up to $5,000.

The case is In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices and Products Liability Litigation, 15-02672, U.S. District Court, Northern District of California (San Francisco).

--With assistance from Jennifer A. Dlouhy To contact the reporters on this story: Alan Katz in Paris at akatz5@bloomberg.net, Christoph Rauwald in Frankfurt at crauwald@bloomberg.net. To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Michael Hytha at mhytha@bloomberg.net, Dalia Fahmy