Volkswagen To Pay $15B For Emissions Scandal Settlement

Volkswagen (DE:VOWG_p) AG (OTC:VLKAY) has reached a settlement with around 500,000 U.S. diesel vehicle owners and government regulators over the emissions scandal, according to sources. However, the deal will cost the company around $15 billion. This is therefore set to be the largest auto scandal settlement in U.S. history.

Volkswagen will either repair or buy back the affected vehicles. Of the total cost, $10 billion will be allocated toward buying back 475,000 affected vehicles with 2-liter diesel engines from their owners. Volkswagen will also compensate the owners with an additional payment ranging from $5,100−$10,000. Owners opting to sell their vehicles back to the company will be receiving the trade-in value prior to the scandal becoming public on Sep 18, 2015. The scandal has severely affected the value of Volkswagen vehicles, with the price dropping almost 19% since the scam was uncovered. However, owners may decline the offer and opt to sue the company independently.

Of the remaining amount of the settlement, $2.7 billion will be allocated for environmental mitigation and another $2 billion will be used for research on zero-emissions technology. Further, the automaker will sign a separate settlement worth $500 million with all the U.S. state attorneys general for the emissions scandal.

Volkswagen has been facing significant trouble since the Environmental Protection Agency (“EPA”) revealed that the company had developed a software algorithm to deceive U.S. emission tests. Volkswagen admitted that its diesel vehicles are installed with software that makes the engines appear to have low emission levels during tests. According to the EPA, these vehicles emit nitrogen oxides, or NOx, at almost 40 times the standard amount. Nitrogen oxide emissions lead to smog and acid rain, and can cause serious health concerns like lung cancer.

Volkswagen may have to shell out billions toward several more fines and penalties. This $14.7 billion settlement does not include the 90,000 3-liter Volkswagen diesels, which were identified with another type of cheating software. In April, the company incurred charges of $18.2 billion for the emissions scandal that affected 11 million vehicles worldwide.

Zacks Rank

Volkswagen currently carries a Zacks Rank #2 (Buy).

Other favorably ranked automobile stocks include Commercial Vehicle Group Inc. (NASDAQ:CVGI) , Oshkosh Corporation (NYSE:OSK) and Superior Industries International, Inc. (NYSE:SUP) , all sporting a Zacks Rank #1 (Strong Buy).

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