Volkswagen reaches judge's deadline for diesel car fix

Friday, April 15, 2016, Vol. 40, No. 16

SAN FRANCISCO (AP) — Time is up for Volkswagen to meet a federal judge's deadline to detail how it will make nearly 600,000 diesel cars rigged to cheat on emissions tests comply with clean air laws.

Senior U.S. District Judge Charles Breyer said he wanted to know the timing of the fix and any planned payments to vehicle owners by a court hearing set for Thursday. That is when a deal is expected to be announced between Volkswagen, the U.S. government and private lawyers for the automaker to buy back some of the vehicles and spend just over $1 billion to compensate owners, a person briefed on the matter said.

The agreement would give some owners the choice of having Volkswagen repair their cars or buy them back, but it does not include plans on how to repair the vehicles, according to the person, who asked not to be identified because the deal hadn't been made public.

Those plans, and the cost of the fixes, apparently are still under negotiation.

Compensation for car owners was among the details Breyer was seeking, but the judge was more focused on ending the ongoing pollution by getting the vehicles to comply with clean air laws.

He said last month that issue at the very least "must be resolved" and threatened a trial this summer if Volkswagen didn't meet his deadline. It was unclear whether the deal would satisfy Breyer.

The "deal in principle" includes a maximum amount of spending, but the final details, such as how much each owner would get, are still being worked out, according to the person briefed on the matter.

With $1 billion to spend, it works out to about $1,700 per car. But some owners of newer models who get just a software fix may receive little. About 325,000 owners of older cars that require more extensive repairs likely will get more, because the repairs could affect mileage and performance.

Shares in Volkswagen were up 5.6 percent in early trading in Europe on news of a deal with the government.

Analyst Marc-Rene Tonn at Warburg Research estimated the direct financial impact on Volkswagen from the emissions scandal worldwide at 28.6 billion euros ($32.3 billion). The company also faces losses from declines in market share and having to lower its prices to keep customers.

Any U.S. settlement could influence what happens in Europe and in other countries, he said. "Very generous payments to U.S. customers may add to some greediness here, too."

The owners and the U.S. Department of Justice sued the company after it acknowledged in September that it intentionally defeated emissions tests and put dirty vehicles on the road.

Volkswagen told its shareholders last year it had set aside $7.3 billion to help defray the potential costs of a recall or regulatory penalties. Most outside observers have said that figure is likely far too low. The company faces as much as $20 billion in fines for Clean Air Act violations alone, before paying to fix the cars or compensate their owners.

Representatives for Volkswagen, the lawyers, and the government all declined comment Wednesday. Wyn Hornbuckle, spokesman for the Justice Department said federal officials would wait until Thursday's hearing before speaking. John Gersten, a spokesman for a law firm representing hundreds of Volkswagen owners, said a confidentiality order barred the firm from making any comment.

Breyer could order an early trial if he's unhappy, but that would divert resources that should be committed to finding a solution, said Michael Steel, an attorney at Morrison & Foerster who has advised car manufacturers about air quality matters.

"If an early trial is scheduled, the parties will put all their energy into preparing for battle instead of negotiating to settle," he said. "So the tool has to be used with great care. It is perhaps more effective as a threat than an actual order."

Volkswagen says in court documents that it does not believe a trial is appropriate.

The first item on Thursday's agenda is a report on the status of fixing the cars and "related discussions." It also includes a request to add the Federal Trade Commission to the case. The FTC has sued Volkswagen alleging deceptive advertising. The owners' lawyers also are seeking documents that Volkswagen provided to the law firm Jones Day, which the company has hired to investigate how the cheating happened.