Calls for payout to Irish motorists as Volkswagen reaches €13.9bn deal in US

Volkswagen will offer "substantial compensation" to US owners of VW cars affected by the diesel emissions scandal, under a $15.3 billion (€13.9 billion) settlement with authorities unveiled on Tuesday.

As part of the settlement the German carmaker has agreed to create a $10.033 billion fund to buy back up to 475,000 US cars affected, and to cover compensating drivers as much as $10,000 per car for their troubles.

Irish compensation

The deal for US owners has led to calls for a similar compensation scheme for European motorists. So far VW Group has resisted such calls.

Legal action has begun in Ireland over the scandal, where VW Group admitted fitting cheat devices to mislead official tests for nitrogen oxide (NOx), a harmful emission linked to respiratory problems. The device was fitted to an estimated 11 million cars across the Group's brands, including Audi, Seat, Skoda and the eponymous Volkswagen brand. Recalls have begun on the 110,000 Irish registered cars affected.

Liam Moloney, a solicitor acting for a number of Irish car owners affected by the emissions scandal said: "Volkswagen Group Ireland should follow the lead of their US parent company and enter into fair settlement talks to properly compensate consumers who are at a loss as a result of their actions".

Earlier this month a district court in Co Mayo granted an interim preliminary order for discovery in a claim for damages by a Roscommon woman against Volkswagen Ireland and its German parent company Volkswagen AG. Her solicitor in the case, Evan O'Dwyer, said he is also representing 87 other customers in Ireland who plan to take cases against the Group over the scandal.

Yesterday a statement from VW Group Ireland said: “There is no compensation for European customers. The relevant facts and complex legal issues that have played a role in coming to these agreements are materially different from those in Europe and other parts of the world.”

It pointed to the stricter rules for NOx in the US, which has led to difficulties in finding technical solutions for that market. In Europe, however, modifications to affected vehicles have already been approved by authorities and repairs are underway.

The company also faces criminal investigations in the US, Germany and South Korea. In some markets dealers and resellers have also sued VW Group as class actions alleging fraud and false advertising.

The US settlement could rise if VW misses certain deadlines. Volkswagen will pay $2.7 billion in fines that will go to the US Environmental Protection Agency and the California Air Resources Board, and invest $2 billion in clean-emissions technology.

US payout

The US payout far exceeds any previous US civil settlement with a car firm, and it brings VW closer to the €16.2 billion it has set aside to cover the costs of the scandal. It will not, however, put an end to VW's legal troubles spanning three continents as the company still faces civil and criminal actions in other jurisdictions.The total economic impact of the scandal on VW was estimated at €55 billion by Richard Hilgert, an analyst at Morningstar Equity Research.

That includes government fines, dealer remuneration, repair costs, vehicle repurchases, plus the litigation costs and damages awarded plaintiffs from class action lawsuits filed by shareholders and consumers, he said in a June 17th report. Buy-Back Target

The compensation figure jumped over the past few days, according to sources, as the parties changed their estimates on what it would take to get some 85 per cent of owners to trade in their vehicles under the settlement.

The Volkswagen settlement would be one of the largest in corporate history, exceeded by the $246 billion agreement between the tobacco industry and US states in 1998 and the multiple payments to private parties and governments over the 2010 BP Plc oil spill. BP's final bill isn't yet known, but it includes agreements to pay more than $25 billion to the US and states and at least $12.9 billion for claims of private property and economic loss.

Rising Expenses

The rising cost of the US settlement raises the question of whether VW has set aside enough money to put the scandal behind it. Maryann Keller, an independent auto industry consultant in Stamford, Connecticut, said the answer depends on how non-US consumers and governments react."The bigger problem is if people in other countries and other governments want a similar deal," Keller said. "If they do, I don't think $18 billion will cut it."

The company’s shares have lost 28 percent of their value since the disclosure.

The announcement on June 23rd that South Korean prosecutors had arrested a VW executive there may be "the tip of the iceberg," said Anthony Sabino, a law professor at St. John's University in New York who specialises in complex litigation. More prosecutors or regulators worldwide may pursue additional actions following the settlement with the US, he said. "There are plenty of public-minded, or just ambitious, politicians and bureaucrats who'll be ringing up VW: 'You gave the Americans this, we want some,'" Sabino said.

- (Additional reporting: Bloomberg)