Volkswagen and U.S. government reach deal to pay owners of cheating diesels, source says

Reporting from DETROIT —  Volkswagen, the U.S. government and private lawyers have reached a deal for the automaker to spend just over $1 billion to compensate owners of about 600,000 diesel-powered cars that cheat on emissions tests, according to a person briefed on the matter.

The “deal in principle” includes a maximum payout by VW, but the final details, like how much each owner would get, are still being worked out, according to the person, who asked not to be identified because the deal hasn’t been made public.

Some owners would get a choice of having VW repair their cars or buy them back, but that would vary by model year and engine type, the person said. The deal does not yet include plans on how to repair the cars, which can spew our harmful nitrogen oxide at 40 times the allowable limit, the person said.

The agreement is likely to be announced Thursday morning during a federal court hearing in San Francisco. Plans to fix the cars, and the cost of the fixes, apparently are still under negotiation.

“They’ve agreed on a maximum amount of money, over $1 billion” for compensation, said the person. “How it’s allocated and distributed, that remains to be seen.”

At Thursday’s hearing, U.S. District Court Judge Charles Breyer also will decide on a schedule for depositions and information exchange between all sides in the case. He could even set a trial date if he’s dissatisfied with the agreement.

Volkswagen has said some of the newer cars could be repaired with minor software updates, while older cars with 2-liter diesel engines would require more extensive and costly repairs. So presumably the compensation would vary with the complexity of the repairs.

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Representatives for Volkswagen, the lawyers and the government all declined to comment. Wyn Hornbuckle, spokesman for the Justice Department, which has sued Volkswagen, 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 him from commenting.

The owners filed dozens of lawsuits against VW after it acknowledged in September that it intentionally defeated emissions tests and put dirty vehicles on the road. The cheating allowed cars to pass laboratory emissions tests while polluting on real roads.

Volkswagen told its shareholders last year that 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 probably 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.

Breyer has told the lawyers to come up with repair and compensation plans before Thursday’s hearing or face a trial. He wants to know the timing of any fixes and any planned payments to owners, among other details, by Thursday.

Lawyers for the owners have said in court papers that if there’s no deal, they want an expedited hearing or a trial before the judge to get an order for “equitable relief” that would begin in July, or they want a full trial that would include punitive damages against VW in the same time frame.

Volkswagen has said in documents that it does not believe a hearing or trial is appropriate, apparently because progress is being made toward a fix and compensation.

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 VW 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.

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California Air Resources Board enforcement chief Todd Sax said last month he doesn’t think it’s technically feasible to repair any of VW’s 2-liter diesel engines, under the hoods of most of the models at issue, to meet that state’s stringent clean air rules.

Breyer said in March that former FBI Director Robert Mueller told him Volkswagen, government regulators and attorneys for car owners had made substantial progress toward a resolution that would get the polluting cars off the road. He did not provide any details. Breyer appointed Mueller to oversee settlement talks.

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