VW closes in on $4.3B U.S. accord in diesel scandal

VOLKSWAGEN AG is closing in on a deal to pay $4.3 billion in criminal and civil penalties to settle a U.S. probe into the rigging of diesel-powered cars to cheat emissions tests. / BLOOMBERG NEWS PHOTO
VOLKSWAGEN AG is closing in on a deal to pay $4.3 billion in criminal and civil penalties to settle a U.S. probe into the rigging of diesel-powered cars to cheat emissions tests. / BLOOMBERG NEWS PHOTO

DETROIT – Volkswagen AG is closing in on a deal to pay $4.3 billion in criminal and civil penalties to settle a U.S. probe into the rigging of diesel-powered cars to cheat emissions tests.

The agreement, which will include a guilty plea according to VW, raises the cost of the scandal to more than $23 billion in the U.S. and Canada, blowing by the 18.2 billion euros ($19.2 billion) the carmaker had set aside to resolve the disputes.

The draft settlement also calls for strengthening compliance systems and installing an independent monitor for three years, the Wolfsburg, Germany-based automaker said Tuesday in a statement. VW’s supervisory board plans to meet Wednesday to review the agreement, people familiar with the matter said.

The accord would resolve one of the last big obstacles to moving beyond the scandal in the U.S., ahead of the Jan. 20 inauguration of President-elect Donald Trump. The agreement would allow the carmaker to begin rebuilding its reputation and focus on plans for clean energy vehicles.

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“This is good news,” Arndt Ellinghorst of Evercore ISI said in an e-mailed statement “The most important news is that VW managed to come to an agreement that allows the company to move on from here. It’s a major relief that this doesn’t get dragged into the new U.S. administration.”

The company has already agreed to pay $14.7 billion to settle claims over about 482,000 cars with 2.0-liter diesel engines and is due to file a final proposal for fixing or repairing models with 3.0-liter engines by Jan. 31. VW still faces investor lawsuits in the U.S. and in Germany, as well as consumer lawsuits and a criminal probe in Germany.

VW said the deal will likely result in a further $3 billion provision in 2016 fourth quarter results, which will be treated as exceptional. The carmaker didn’t say in the statement whether individuals would be charged or plead guilty. Oliver Schmidt, the company’s liaison with U.S. environmental regulators, was arrested Saturday in Florida and is scheduled to appear in court there again Thursday.

Court approval

A final agreement also needs to be approved by U.S. courts. The U.S. Justice Department declined to comment on Volkswagen’s statement.

Separately, Porsche Automobil Holding SE, the investment vehicle of the Porsche and Piech billionaire families that controls 52 percent of VW’s voting stock, said its financial performance will be hurt by the settlement.

U.S. authorities in 2015 uncovered the carmaker’s efforts to deliberately cheat on emissions tests on diesel vehicles. The rigged engines were ultimately installed in 11 million vehicles worldwide, and cost former Chief Executive Officer Martin Winterkorn his job.

Volkwagen’s shareholders have suffered since the scandal began in September 2015. Shares are down more than 10 percent, though they’ve rallied from a low of 95 euros to close Tuesday at 148.10 euros in Frankfurt trading. Its current market cap is about 74 billion euros, and the Justice Department was said to have taken into consideration how much the carmaker could afford to pay in calculating its penalty.

Shares of VW’s American depositary receipts gained as much as 0.7 percent and closed at $31.46 in New York trading. On Monday, the stock surged 4.3 percent, the most in seven months.

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