VW emissions scandal: VW Group agrees to $15bn settlement with US owners

28 Jun, 2016 11:10am Martin Saarinen

The current state of play in the Volkswagen diesel emissions scandal: compensation, recalls and falling sales

Volkswagen is reported to have reached a $15 billion (£11.3 billion) settlement with US car owners. Under the deal VW is offering to buy back or repair vehicles affected by the dieselgate scandal as well as paying out compensation, after the German carmaker was found to have cheated in US emissions tests. 

According to reports, the Volkswagen Group has set aside $10 billion (£7.51 billion) to repair or buy back around 475,000 vehicles with the 2-litre diesel engines found to have 'defeat device' software installed to cheat emissions tests. It has also agreed to compensate owners with payments up to $10,000 (£7,514). US owners of affected VW Group cars have already received gift cards worth $1,000 as an apology from VW. 

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The deal is also said to include $2.7 billion (£2 billion) in funds to offset the extra diesel emissions caused by the VW emissions scandal and a further $2 billion (£1.5billion) for research into eco-friendly cars and green energy initiatives. 

No emissions scandal compensation for UK VW owners

In Europe, a fix for the dieselgate affected cars has already been approved and recalls are underway. UK and European owners have not received any compensation and are unlikely to, according to previous statements from the Group. The reasoning being that the fix to VW's cars will have no impact on performance or economy and the cars can pass less stringent EU emissions tests without the defeat device. The repairs to affected US cars will be more complicated as the emissions test criteria in the US is far stricter. 

However, members of the European Commission have struck out at the German carmaker, demanding it to pay equal compensation to affected owners outside the US. European Commission commissioner Elzbieta Bienkowska said: "Volkswagen should voluntarily pay European car owners compensation that is comparable with that which they will pay US consumers with. Treating consumers in Europe differently than US consumers is no way to win back trust." 

Speaking before the Environment, Food and Rural Affairs Committee, Paul Willis, Managing Director of Volkswagen Group UK, said: “To pay compensation there has to be a loss, and at this stage I see no reason for there to be a loss. Our engineers tell us there will be no difference in fuel consumption or driveability.

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“So the only other area is on the question of residual values. I, at the moment, have seen no clear evidence of adverse impact on residual values. So when I say that there is no loss, then there is also no need for compensation.”

Yet VW may not be off the hook completely. The UK Government has stated that if evidence of consumers suffering from falling residual values or vehicle performance emerges, VW would be liable to compensate owners. 

Transport spokesman Viscount Younger of Leckie said: "The Competition and Markets Authority has not opened a formal investigation but is continuing to assess whether there is evidence of consumer harm." 

How the emissions scandal evolved

The ‘dieselgate’ emissions scandal dates back to September 2015 when the US Environmental Protection Agency (EPA) found that the VW Group had built diesel cars with ‘defeat device’ software designed specifically to cheat emissions tests. 

However, the scandal finds its origins in 1999 when Audi engineers, according to reports in the German media, created a defeat device to bypass emissions tests. The device, however wasn't used until 2005 when VW decided to launch an aggressive diesel campaign into the US and had to use the device to pass the emissions tests. Under the stricter standards in the US at the time, only 31mg/km of nitrogen oxides were allowed to be emitted, six fold less than the European standards at the time (Euro 5).

To meet budget and an approaching deadline, a group of engineers in the powertrain development division began to modify the engine management software, so the cars would meet the emissions criteria. A total of 15,000 individual algorithms were changed by the VW employees. 

Around 11 million diesel cars with EA 189 1.2, 1.6 and 2.0-litre pre-Euro 6 diesel engines have been identified by Volkswagen as containing the ‘defeat device’ software. In the UK, over 1.1 million cars were sold with the malevolent software on board. The Group issued a worldwide recall to fix all affected VW, SEAT, Skoda and Audi vehicles.  

Shortly afterwards, the VW Group also announced that an internal investigation had revealed that official CO2 and fuel economy figures for 800,000 of its vehicles contained irregularities. This was the first time VW admitted its Euro 6 compliant engines have been manipulated, and also widened the issue from diesel engines only to include petrol cars too.  

The storm surrounding VW has reached the upper echelons of the corporate hierarchy with a shuffle in managerial positions, culminating in the former-CEO Martin Winterkorn resigning and being replaced by ex-Porsche boss Matthias Muller.  

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The new management board has taken up defensive positions by raising the amount of money set aside to cover the damages from £4.7billion to £12.6billion. However, no definitive verdict on the costs of the entire scandal has been made. 

Although other car companies were all quick to state no such culture exists within their factories, news of Renault recalling 15,000 vehicles after the French government found their emissions above acceptable limits has added to the public scepticism. 

VW recalls from March 2016 onwards

Volkswagen and the German Motor Industry Federation (KBA) have come up with technical solutions to the VW emissions scandal. 2.0-litre diesels will receive a software tweak, while vehicles with a 1.6-litre diesel will need to be fitted with a ‘flow transformer’ device to help the engine’s computer calculate the right amount of fuel and air being combusted. 

This means around 400,000 UK cars will require mechanical changes - but VW says they should take less than an hour to make at dealerships. The software update for 2.0 engines will take around half an hour. A fix for the 1.2-litre unit is still under consideration.

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VW confirmed the fix will not affect the performance or fuel economy of the cars, while Mueller also said the cars will pass the European emissions test (without cheating) after the fix has been installed. 

The changes made as a result of the recall will have "negligible effect" on customer cars in terms of performance or fuel economy, with Mueller explaining that owners "won't be able to feel it."

Volkswagen has published the following timeline for UK recalls.. 

Engine Approval by KBA Intended start of Fix roll out
EA 189 2.0-litre Jan/Feb 2016 1/3/2016
EA 189 1.2-litre April/May 2016 1/6/2016
EA 189 1.6-litre July/Aug/Sept 2016 1/10/2016

Though UK vehicles get by with software tweaks, vehicles in US and will need many more physical changes to the catalytic converters and the Selective Catalytic Reduction (SCR) AdBlue urea injection systems to pass the strict North American emissions criteria. This is going to take longer, and the Group announced it still does not have a confirmed timeline for North American owners. 

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Scroll down for everything you need to know about the VW emissions scandal...

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Check if your VW Group car is subject to the recall

The VW Group has said that the following quantities of UK vehicles are set for a recall... 

  • • VW passenger cars - 508,276
  • • Audi - 393,450
  • • SEAT - 76,773
  • • Skoda - 131,569
  • • VW commercial vehicles - 79,838

Total VW Group cars set for UK recall: 1,189,906

The websites below let owners of VW Group cars check whether or not their models are fitted with the EA 189 engine and subject to the recall. All you need is your car's VIN number which should be located at the bottom corner of the windscreen on the driver's side or in the car's service book. 

VW emissions scandal timeline: how 'dieselgate' happened

Click through to page two for the answers to your key questions regarding the VW emissions scandal...

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