Volkswagen AG will pay $14.7 billion to settle legal claims concerning its 2015 emissions scandal, according to sources familiar with the matter.
The amount is deemed the largest class-action settlement in the U.S. to date, and could steer the embattled carmaker in the right direction as it seeks to regain investor confidence and consumer trust.
In April, the company set aside $18.2 billion to pay for the penalties, lawsuits, recalls and other damages incurred in the aftermath of the scandal.
Largest Class-Action Settlement In The Auto Industry
By far, Volkswagen's $14.7 billion deal, involving private citizens and the federal government, is the largest in the history of the auto industry.
In 2012, defective accelerators cost Toyota $1.4 billion to settle a class-action suit and another $1.2 billion to settle criminal charges.
General Motors, on the other hand, has so far spent more than $2 billion in a deal with owners of vehicles that had defective ignition switches, and it settled criminal charges for an additional $900 million.
Airbag maker Takata, however, has not finalized a settlement with regulators over defective airbags.
Breakdown Of Volkswagen's $14.7 Billion Agreement
• $10 billion: A maximum of $10.03 billion will be allocated to the repair or buyback of about 475,000 affected units. VW will also provide an additional cash compensation to the owners of vehicles with the 2-liter diesel engine.
The individual payout will be calculated based on the vehicle's value set before the scandal was made public on Sept. 18 last year. The average price of a VW diesel vehicle in August 2015 was about $13,000. Each owner will be paid about $5,100 to $10,000, sources claim.
Owners who divested themselves of the affected units, after the emissions scandal broke out, will also receive half the amount of compensation the current owners will be paid.
Details of VW's auto repair plans, following standards set by the U.S. Environmental Protection Agency (EPA), have not been settled.
The deal does not, however, include the 90,000 vehicles with the 3-liter diesel engine, which reportedly had a different defeat device in their program.
The nearly half a million vehicles that are covered in the settlement are only about 4.3 percent of the 11 million affected cars in total.
• $2.7 billion: The amount will go into an EPA fund for the environmental damage the cheating had caused. The EPA is a party to the case.
In September 2015, the federal agency discovered the cheat code embedded in the software of VW's diesel vehicles. This defeat device caused the vehicles to register lower levels of the hazardous nitrogen oxide during emissions tests. On the road, however, the same vehicles would emit 40 times the levels of nitrogen oxide permitted by the EPA.
• $2 billion: VW will also be spending $2 billion on projects that aim to develop cleaner vehicles. Sources believe the carmaker will have much to gain from its investment in zero-emissions technology over the next decade.
The troubles of VW do not end here, however, because the car company is still facing a lawsuit filed by 42 attorneys general, on top of a criminal inquiry undertaken by the U.S. Department of Justice.
The class-action settlement still needs approval from the federal judge handling the case. However, vehicle owners who wish to sue VW can proceed on their own.