Business First Look

Judge approves $1.2 billion cash settlement for Volkswagen dealers

The 650 US Volkswagen dealers will receive an average of $1.85 million over 18 months, in a settlement approved by a federal judge on Monday.

A US flag flutters in the wind above a Volkswagen dealership in Carlsbad, Calif., in 2016.
Mike Blake/Reuters/File
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Volkswagen franchise dealerships across the United States will receive an average cash payout of $1.85 million apiece as part of a $1.2-billion cash settlement granted final approval Monday by a federal judge in California.

The settlement puts to rest a class action lawsuit filed last fall against the German automaker, but it is not the only costly court case to stem from a revelation 16 months ago that VW had intentionally dodged emissions standards, in what has since been dubbed the "dieselgate" scandal. Admitting that it installed "defeat device" software in about 475,000 vehicles, VW agreed to one of the largest consumer settlements in history, and several executives have been prosecuted.

Authorities in the European Union similarly began pushing late last year for potential enforcement actions against VW and other automakers who try to sidestep inconvenient policies designed to protect the environment.

Steve Berman, lead attorney for the dealerships in the class action lawsuit, said the settlement finalized Monday represents another step toward holding VW accountable for duping not only individual drivers but also franchise dealers "who, like consumers, were blindsided by the brazen fraud that VW perpetrated."

Of the 651 dealers eligible to for the settlement, only seven opted out, US District Judge Charles Breyer in the Northern District of California wrote in his order. Most of the participating dealers already received the first half of their cash payout last month, and the second half will be paid out over the coming 18 months, he wrote, deeming the settlement to be "fair, reasonable, and adequate."

Eight dealers objected to the specific terms of the settlement, several taking issue with how their cash payout was calculated, but Judge Breyer overruled the objections.

In addition to the cash, VW agreed also to continue making volume-based incentive payments and to allow the dealers to defer capital improvements for two years. Conservative estimates value these ongoing payments at $172.8 million, court records state.

In total, the company has now agreed to spend as much as $22 billion to address US claims from car owners, dealers, state governments, and environmental regulators after its vehicles were discovered to be emitting up to 40-times the legal limit of pollution.

Hinrich Woebcken, chief executive of VW's North American operations, said earlier that the company believes the agreement with the dealers is "a very important step in our commitment to making things right for all our stakeholders in the United States," as Reuters reported.

Mr. Berman's law firm, Hagens Berman, said in a statement that the total settlement is valued at more than $1.6 billion for the dealers, counting the $1.2 billion in cash payments and other provisions.

This report includes material from Reuters.