VW Closes In on $4.3 Billion US Accord in Diesel Scandal


Volkswagen AG is closing in on a deal to pay $4.3 billion in criminal and civil penalties to settle a U.S. probe into the rigging of diesel-powered cars to cheat emissions tests.

The agreement, which VW said Tuesday will include a guilty plea, raises the cost of the scandal to more than $23 billion in the U.S. and Canada, blowing by the 18.2 billion euros ($19.2 billion) the carmaker had set aside to resolve the disputes.

The accord would resolve one of the last big obstacles in the U.S. ahead of the Jan. 20 inauguration of President-elect Donald Trump. That will allow the carmaker to begin rebuilding its reputation and focus on plans for clean energy vehicles.

“This is good news,” Arndt Ellinghorst of Evercore ISI said in an e-mailed statement “The most important news is that VW managed to come to an agreement that allows the company to move on from here. It’s a major relief that this doesn’t get dragged into the new U.S. administration.”

The draft settlement also calls for strengthening compliance systems and installing an independent monitor for three years, the Wolfsburg, Germany-based automaker said Tuesday in a statement. VW’s supervisory board plans to meet Wednesday to review the agreement, people familiar with the matter said.

A final agreement must be approved by U.S. courts. The Justice Department declined to comment on Volkswagen’s statement. U.S. prosecutors are planning to charge high-level VW executives based in Germany, a person familiar with the matter said.

U.S. authorities in 2015 uncovered the carmaker’s efforts to deliberately cheat on emissions tests on diesel vehicles. The rigged engines were ultimately installed in 11 million vehicles worldwide, and cost former Chief Executive Officer Martin Winterkorn his job.

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Bridge Loan

VW said the U.S. settlement would likely result in a further $3 billion provision in 2016 fourth quarter results, which will be treated as exceptional. The carmaker extended a 20 billion euro bridge loan facility through mid-2017 to provide an additional financial cushion and protect its credit rating. The company had net liquidity of 31.1 billion euros in the automotive division at the end of the third quarter.

Separately, Porsche Automobil Holding SE,  the investment vehicle of the Porsche and Piech billionaire families that controls 52 percent of VW’s voting stock, said its financial performance will be hurt by the settlement.

VW still faces investor lawsuits in the U.S. and in Germany, as well as consumer lawsuits and a criminal probe in Germany. The company didn’t say in its statement whether additional individuals would be charged or plead guilty. At least one employee is facing charges in the U.S. and another has already pleaded guilty related to the scheme.

Oliver Schmidt, the company’s liaison with U.S. environmental regulators, was arrested Saturday in Florida and is scheduled to appear in court there again Thursday.

Cooperating Defendant

VW engineer James Liang pleaded guilty in September in Detroit federal court to conspiring to defraud U.S. regulators and consumers. Liang, who spent 25 years with Volkswagen in Wolfsburg before moving to the U.S. in 2008, was involved in creating a defeat device so cars with 2.0-liter diesel engine could pass emissions tests.

Liang, who is scheduled to be sentenced May 3 and faces as long as five years in prison, is cooperating with prosecutors.

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Volkswagen’s shareholders have suffered since the scandal began in September 2015. Shares are down more than 10 percent, though they’ve rallied from a low of 95 euros to close Tuesday at 148.10 euros in Frankfurt trading. The Justice Department was said to have taken into consideration how much the carmaker could afford to pay in calculating its penalty.

Shares of VW’s American depositary receipts gained as much as 0.7 percent and closed at $31.46 in New York trading. On Monday, the stock surged 4.3 percent, the most in seven months.

Takata Negotiaions

Takata Corp. is also in advanced negotiations with the Justice Department to resolve allegations of wrongdoing related to defective air bags, though a settlement has yet to be reached, people with knowledge of the discussions said. The resolution will probably involve a financial penalty in the hundreds of millions of dollars and may include criminal charges against the company, the people said.

Volkswagen’s payout for settlements is the largest for an automaker in the U.S.

Toyota Motor Corp. spent more than $2.8 billion in settlements with consumers and the U.S. following the recall of millions of vehicles over unintended acceleration concerns. That included a $1.2 billion resolution with federal prosecutors of the criminal investigation, but didn’t include the total paid to accident victims.

General Motor Co. has spent $2.1 billion so far for faulty ignition switches, including $900 million to resolve the U.S. criminal probe. Neither Toyota nor GM pleaded guilty to a crime.

The carmaker agreements are eclipsed by the $38 billion BP Plc has spent so far to resolve government probes and claims over private property and economic losses related to 2010 Gulf of Mexico oil spill.

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Settlement Pressure

Under orders from the federal judge to fix about 560,000 cars equipped with defeat devices or get them off the road, VW reached a series of U.S. agreements last year totaling $17.5 billion. The pressure on government officials to reach a deal increased with the election of Trump, who is expected to move quickly to deregulate the energy industry and scale back the role of the Environmental Protection Agency.

It first agreed to pay up to $14.7 billion to resolve claims involving about 480,000 vehicles with 2-liter diesel engines. In October, U.S. District Judge Charles Breyer in San Francisco gave final approval to that deal, which included buying back the cars from owners plus $2.7 billion for federal and state regulators and $2 billion toward investment in clean technology.

VW also reached a $603 million agreement with California and 43 other states over violations of consumer-protection laws. Still pending are separate lawsuits by states including New York claiming violations of environmental rules.

Dealerships, Canada

VW also agreed to pay $1.2 billion to franchise dealerships in the U.S. and C$2.1 billion ($1.6 billion) to resolve consumer and regulator claims in Canada.

Last month, VW reached a $1 billion preliminary settlement covering about 83,000 models with 3.0-liter engines. Breyer set a Jan. 31 deadline for VW to file the settlement, which calls for buying back or fixing the vehicles.

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