VW's Emissions Settlement Is a Raw Deal for Its Most Important Customers

From Road & Track

Today-Tuesday, July 26^th-is the court hearing for Volkswagen Group's preliminary approval of their proposed 2.0L TDI owner settlement (Update: It was approved). In case you haven't seen the details of the Partial Consent Decree that went public June 28^th, it provided buy-back prices for the roughly 470,000 "Clean Diesel" 2.0L TDI powered Volkswagens and Audis (Jettas, Golfs, Beetles, A3s) sold between 2009 and 2015. It also provides for additional cash restitution to the owners of $5,100 to $9,800 on top of the buyback price, a sum arrived at by taking 20 percent of the trade-in value of your car in August of 2015 (pre-scandal) plus $2,986.73 but not to be less than $5,100 in any case (you can see the exact numbers here).

Or, assuming the EPA approves whatever fix VW comes up with to be emissions compliant and you want to keep your guaranteed-to-be slower, louder, and thirstier TDI, then VW will perform the recall and give you a check for the same restitution number outlined above.

That's VW's solution to make good. But it actually shorts VW's most important customers: Original owners who purchased or financed a new TDI (Full Disclosure: My wife is the original owner of a TDI and, as there is no interest like self interest, we've carefully read all of the court documents). Lessees, on the other hand, will come out nicely with the restitution money and their leases voided without any penalties.

I know a lot of TDI owners saw the proposed settlement numbers and thought they were great. But when you really look at it, are they? TDI owners were sold a bill of goods and-after 16 years of knowingly defrauding consumers-VW has somehow found a way to share the financial downside of being caught with the very consumers they lied to.

No matter how you slice it, VW spent 16 years perfecting what is unquestionably wholesale fraud on a level unheard of today. This "cheat device," referred to internally at VW as the "acoustic function," was in its sixth generation when discovered. Yes, six versions of it were carefully engineered over a decade and a half to fool regulatory agencies and not be detected. All the while VW hung their hat on the "Clean and Green" and "Clean Diesel" sales pitch knowing their cars were anything but-polluting at up to 40 times the legal limit anywhere but on an EPA dynamometer. They knew that without this cheat device that their cars would not perform and would not make the numbers for either fuel mileage or longevity. By all reports this was not some back room secret or an outside supplier pulling the wool over VW's eyes; this was a company-wide choice that went all the way to the top. Internal emails have been discovered talking about how they wouldn't get caught, and even after they did instructing VW Group employees to stonewall authorities and not explain the cheat device. Further evidence has surfaced that VW employees began destroying documents as soon as they were tipped off that investigators would be coming.

There isn't a level this isn't appalling on.

And don't forget: The US is just a part of VW Group's worldwide market as well. It is estimated that there are eleven million VW diesels currently operating with the cheat device software in place. In any other industry it would be unheard of to defraud consumers to this extent and then be allowed to negotiate a settlement where original owners get a percentage of their money back.

If Apple sold a product that was found to be as falsely advertised as TDIs what do you think the outcome would be? Partial refunds at wholesale level? A little remediation money for the damage done to the environment? A software fix and a check to make you go away? I doubt it.

It won't happen but I don't know why VW Group isn't being forced to refund every consumers full purchase price, including the sales tax they paid, plus any direct damages (maintenance, upgrades, etc.) plus restitution to make right for the fraud. Make people whole, not almost whole. Buying a new car is hard enough for most people, and who wants to do that again?

Ok, so VW isn't giving full retail value. Fine. The problem? The value of the buyback and additional restitution is determined from NADA Book trade-in value, which is essentially wholesale. That doesn't make customers whole. It is buying back the car they bought new, at retail, for its depreciated used-car value. And the older the TDI is the less VW has to pay. Here's the bigger question: Why does this trade-in value proposal exist when it clearly contradicts the agreement laid out in the 225-page Partial Consent Decree posted on the FTC's website that, in part, reads:

How is trade in value the same as "no less than Retail Replacement Value?" Will VW open a special online vehicle sales marketplace where TDI owners will be able to take their buy-back check and purchase a replacement vehicle at wholesale, err, trade-in value? And, what about the sales tax credit every owner will lose? Typically that has been the only advantage to ever trade in your car when buying a new one, the simple fact that depending on your states sales tax rate, that you are exempt from tax on whatever the trade amount is. That is a savings of 5 to 9 percent on top of whatever you get for your trade. For example if you get a $27,000 trade credit and your tax rate is 7.95 percent you save $2,146.50 in tax on your new car. Meaning your net trade amount is actually $29,146.50.

But TDI owners aren't trading in: they are selling outright to VW and having to Uber somewhere else to get a replacement vehicle. At retail. With full sales tax. The only possible silver lining is that, according to the proposed agreement, you can elect the buyback option, lock in the price, but you don't actually have to turn the car in until September 1^st, 2018. So there is potentially two more years of "free" driving, if you don't mind the stigma of being a gross polluter. The TDI emblems come off easily enough, though, and a new 1.8T emblem is $20.00 on eBay. . .

Even worse, beyond all of this, what has VW done to give diesel power a black eye in general? It took decades to change public perception after the horrible diesels that were thrust upon us in the late 1970s and early 1980s.

It will be interesting to see what happens with the settlement moving forward, as well as the criminal charges pending against VW both here and in the rest of the world. VW owners have proven to be a loyal bunch but I just don't see how this is something that can be Fahrvergnugened away. From where I sit VW, even with this multi-billion dollar penalty, has been given the deal of a lifetime, at least for now. And they should be happy consumers are fickle. Hey, we'd already forgotten the "sudden unintended acceleration" thing. Right?

Colin Comer is R&T's resident used car buff. If you couldn't tell, he doesn't think the VW Diesel settlement is a good deal for consumers.