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How Volkswagen's $15B payout will affect California

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The logo of German car maker Volkswagen is pictured at the company's headquarters in Wolfsburg, central Germany, on September 25, 2015 during the company's supervisory board meeting. Matthias Mueller, head of luxury sportscar maker Porsche, looks set to take the steering wheel at scandal-hit Volkswagen, replacing Martin Winterkorn who quit over the global pollution cheating scandal engulfing the group.  AFP PHOTO / JOHN MACDOUGALL        (Photo credit should read JOHN MACDOUGALL/AFP/Getty Images)
In this file photo, the logo of German car maker Volkswagen is pictured at the company's headquarters in Wolfsburg, central Germany, on September 25, 2015 during the company's supervisory board meeting. The company has agreed to pay out more than $15 billion to resolve issues related to its emissions cheats.

The bulk of the settlement figure will go to reimbursing vehicle owners by buying back their vehicles or terminating lease agreements.

Volkswagen has agreed to pay out more than $15 billion in a settlement over emission cheats built into some of its VW and Audi diesel cars.

The settlement addresses civil claims from the U.S. Department of Justice, the state of California, the Federal Trade Commission and private plaintiffs.

California Attorney General Kamala Harris said the final settlement amount was intended to address both environmental mitigation and the impact on conscientious consumers, who she said were "duped" by Volkswagen.

"The issue here is not only about the environmental harm. It is also about false advertising," Harris said at a press conference. "Environmentally conscious consumers might otherwise have purchased low-emission vehicles or hybrids from other dealers, but they relied on the representations made by Volkswagen."

Volkswagen's so-called green diesel vehicles were actually spewing smog-producing nitrogen oxides into the air at 40 times the legal limit, Harris said.

The bulk of the settlement figure will go to reimbursing vehicle owners. Volkswagen said in a statement it had set aside $10.033 billion to buy back affected vehicles or terminate lease agreements.

An additional $2.7 billion will go to establish a fund for environmental remediation, and Volkswagen has agreed to invest $2 billion in initiatives to promote the use of zero emissions vehicles in the U.S.

Volkswagen also agreed to a separate $603 million settlement to resolve consumer protection claims in 44 states, the District of Columbia and Puerto Rico.

About 475,000 vehicles with 2.0L diesel engines are eligible for buyback or lease termination. They include the following models:

  • VW Beetle (2013–2015)
  • VW Golf (2010–2015)
  • VW Jetta (2009–2015)
  • VW Passat (2012–2015)
  • Audi A3 (2010–2013; 2015)

Authorities expect about 85 percent to 90 percent of those vehicles to be turned in or modified, which means some of the emissions-cheating vehicles will remain on the road, California Air Resources Board Chair Mary Nichols said at the press conference.

"That is where the $4.7 billion that the attorney general mentioned comes in, because again in a first for [the] Clean Air [Act], we are not only looking to mitigate the past harm that was done by the excess emissions but to build in a cushion to pay for projects that will mitigate any future ongoing excess emissions of NOX from these vehicles," Nichols said.

California is expected to get about a quarter of that $4.7 billion, according to Harris.

The state will receive about $380 million to support environmental programs and about $800 million in investments for zero emissions technologies, Harris said.

The Ride’s Sue Carpenter joined the show to discuss.

Interview highlights

On the $10.033 billion earmarked for consumers

Specifically, owners can sell back their vehicle and lessees can terminate their leases without penalty. Or, if the emissions system on their car can be fixed, they can choose to have their vehicle modified free of charge and keep it.

Regardless of whether they have their vehicles bought back or fixed, they will also receive a cash payment from VW. Payouts will range from $5,100 to $10,000 depending on the model year. Those monies are in addition to the cars’ buyback value.

VW is using the National Automobile Dealers Association Used Car Guide from September 2015 as its basis to determine a vehicle’s buyback value. Adjustments to that value can be made based on factory options and vehicle mileage.

On the additional $5 billion

VW has agreed to pay $2.7 billion over three years into an environmental trust to remediate excess nitrogen oxide emissions and to invest $2 billion over 10 years in zero emissions vehicle infrastructure, access and awareness initiatives in the U.S. California will be getting about a quarter of those monies.

Additionally, VW struck a deal with 44 U.S. states, the District of Columbia and Puerto Rico to resolve existing and potential state consumer protection claims about the diesel emissions issue — a settlement worth about $603 million.

If all of this sounds like a lot of money, it is, but even so, there are still unresolved issues.

On the unresolved issues

For owners and lessees of the affected 2-liter vehicles who want to keep their cars, we don’t know how many of the vehicles can be fixed or what the fix will be or when it will be available.

VW hasn’t yet announced its plan for the 3-liter V6 diesel engines from VW, Audi and Porsche that also used emissions-cheating software. There are 85,000 of those that emitted up to nine times the legally allowable limit. How VW will resolve the problem with those vehicles probably won’t be known for another couple months.

Today’s proposed settlement also doesn’t resolve lawsuits from VW’s dealers, investors, bondholders and individual consumers who sued outside of the San Francisco federal court lawsuit.

On California’s role in the settlement

California is getting about a quarter of the environmental remediation monies, so a little more than $1 billion. California had the largest percentage of affected cars — 71,000 of the nearly 500,000 2L vehicles were in use in California.

Today, the California Air Resources Board and Attorney General Kamala Harris announced that VW will spend $380 million for projects to reduce smog-producing pollution by incentivizing clean heavy-duty vehicles and equipment in disadvantaged communities. And it will spend another $800 million in investments to advance California’s zero-emissions vehicle programs.

On Volkswagen's response

VW issued a press release that was both contrite and defensive. CEO Mattias Mueller was quoted as saying “we take our commitment to make things right very seriously and believe these agreements are a significant step forward.”

At the end of the press release VW also said “the agreements announced today are not an admission of liability by VW… Regulations governing nitrogen oxide emissions omits for vehicles in the U.S. are much stricter than those in other parts of the world… This makes the development of technical solutions in the U.S. more challenging than in Europe and other parts of the world, where implementation of an approved program to modify TDI vehicles to fully comply with European emissions standards has already begun.”

On when the buybacks and payouts will take place

After the court grants final approval to the settlements agreements. The earliest that could happen is the fall of 2016. Owners of the affected cars do not need to contact VW, Audi or their dealers at this time. Individuals will receive notification of their rights and options following the next court hearing for preliminary approval of the consumer class-action settlement, which will be July 26. The public is allowed to comment on the proposal once it’s been filed with the court, which is happening today.

This post has been updated.  The interview has been edited for length and clarity.

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