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Volkswagen in 'advanced talks' with US to settle diesel emissions scandal in $4.3 billion deal

German automaker Volkswagen on Tuesday disclosed that it was in advanced talks with United States authorities to settle its diesel emissions scandal in a USD 4.3 billion (Rs 29,300 crore) deal.
India TV Business Desk Frankfurt January 11, 2017 20:11 IST
India TV Business Desk

German automaker Volkswagen on Tuesday disclosed that it was in "advanced talks" with United States authorities to settle its diesel emissions scandal in a $4.3 billion (Rs 29,300 crore) deal which the company would pay in form of criminal and civil fines. 

The company would have to plead guilty to criminal misconduct under the negotiated deal. 

Volkswagen has admitted equipping diesel cars with sophisticated software that turned on emissions controls when engines were being tested by the Environmental Protection Agency, then turned them off during normal driving. The software, called a "defeat device" because it defeated the emissions controls, improved engine performance but spewed out harmful nitrogen oxide at up to 40 times above the legal limit. 

The scandal was revealed in September 2015, when West Virginia University tested on-road diesel emissions. The EPA issued a notice of violation, and VW apologized and brought in U.S. law firm Jones Day to investigate. 

If finalized, a $4.3 billion settlement would eclipse Toyota's $1.2 billion penalty over unintended acceleration problems as well as General Motors' $900 million payment to resolve a deadly ignition-switch scandal. 

The draft settlement with the U.S. Department of Justice and U.S. Customs and Border Protection would include the appointment of an independent monitor to oversee the company's compliance and control measures for three years.

A company statement issued Tuesday said that under the proposal Volkswagen would agree to "a guilty plea" to criminal law provisions.

The draft needs to be approved by Volkswagen's boards and U.S. courts. Volkswagen said its management board of top executives, which includes CEO Matthias Mueller, and its board of directors would deal with the issue "in the very short term," as soon as Tuesday or Wednesday.

"A final conclusion of the settlement agreement is further subject to the execution by the competent U.S. authorities and to the approval of the competent U.S. courts," the company said.

The penalties would exceed the amounts Volkswagen has set aside to cover costs from the scandal, but the specific impact on 2016 earnings "cannot be defined at present," the statement said. 

Volkswagen had already deducted 18.2 billion euros ($19.2 billion) from earnings to account for the expected costs of fines, settlements and recalls.

Volkswagen has reached a $15 billion civil settlement with environmental authorities and car owners in the U.S. under which it agreed to buy back up to 500,000 vehicles. The company also faces an investor lawsuit and criminal probe in Germany. In all, some 11 million vehicles worldwide were equipped with the software.

The company has admitted equipping diesel cars with software that turned up emissions controls when the car was being tested, and turned them down during normal driving, improving engine performance but exceeding emission limits.

Volkswagen has reached a $15 billion civil settlement with environmental authorities and car owners in the U.S. under which it agreed to buy back up to 500,000 vehicles. The company also faces an investor lawsuit and criminal probe in Germany.

In all, some 11 million vehicles worldwide were equipped with the software.

The scandal was revealed in September 2015, when the U.S. Environmental Protection Agency issued a notice of violation. CEO Martin Winterkorn resigned and was replaced by Mueller. The company has apologized and brought in U.S. law firm Jones Day to investigate.

Oliver Schmidt, the company's former head of U.S. environmental compliance, was arrested over the weekend in Florida. Another employee, engineer James Liang, has pleaded guilty in the criminal case.

In a 2014 agreement with the U.S. Justice Department, Toyota agreed to pay a $1.2 billion fine over unintended acceleration problems. Similarly, General Motors agreed in 2015 to pay $900 million to resolve a deadly ignition-switch scandal, striking a deal with the Justice Department that avoided criminal charges against individual executives.

The scandal had little effect on the sales of Volkswagen cars with the German automaker set to pass Toyota for the title of world's biggest carmaker for the year.

Booming business in China helped Volkswagen increase its sales to 10.31 million vehicles last year across all its brands, which include Audi, Porsche and Skoda, the company said Tuesday.

That was an increase of 3.8 percent over 2015, when Volkswagen came in second to Toyota. And a strong finish to the year in December — 11.8 percent better than the same month the year before — improves the company's chances of moving from No. 2 to No. 1 in global sales.

That Volkswagen is even in the running for top spot seems remarkable considering how terrible the year was on the legal and image front. 

Even the company shares making solid gains. Volkswagen shares were up 3.9 percent on the day at 151.80 euros ($160.68) in early-afternoon Frankfurt trading Wednesday.

(With AP inputs)