Why Volkswagen just agreed to the largest buyback in US history

The settlement follows Volkswagen’s admission in September that it misled regulators by allowing its US vehicles to emit up to almost 40 times the legal amount of pollution.

Focke Strangmann/dapd/AP/File
Fans of Volkswagen Beetles gathered in Hannover, northern Germany in 2012. The German automaker will pay $14.7 billion in a settlement with vehicle owners after Volkswagen admitted it installed software that allowed its US vehicles to emit nine to 38 times the legally allowable amount of pollution.

The German automaker Volkswagen will pay $14.7 billion in a settlement to be formally announced on Tuesday, two anonymous sources told The Washington Post, making the largest payout to car consumers in US history. 

In September, Volkswagen admitted it had installed software in its US-bound vehicles with two-liter diesel engines to make them stay under the legal emissions limit when tested. On the road, however, they emitted nine to 38 times the limit

More than $10 billion will go toward fixing or buying back 475,000 vehicles. The company will also give $2.7 billion to the Environmental Protection Agency, and $2 billion toward "American clean energy technology," The Post reported. 

The overall bill could still climb: State attorneys in nearly 40 states are still working toward their own settlements with Volkswagen. The automaker could face additional lawsuits in Europe, as well, where the revelation that the famous company deceived customers has been particularly hard-hitting

Under the US agreement, car owners can either have the software removed for free, or sell their vehicle back to VW for its pre-scandal price. Buyers are also eligible to receive between $5,100 and $10,000. 

The US toughened its emissions standards sharply in 2008. In Europe, however, where diesel is a much more popular option, emissions limits were lowered more recently. While other car companies began to introduce gasoline hybrid-electric vehicles to meet new US standards, VW remained proudly focused on diesel.

"If US car buyers were smarter and better informed," a Volkswagen powertrain executive told Green Car Reports' reporter John Voelcker, "they'd buy our clean diesels instead of all this hybrid nonsense." Diesel engines are more cost-efficient than hybrids for car companies, he claimed.

In June, however, Volkswagen announced "a far-reaching plan to stake the company's future on battery electric vehicles," as Aaron Cole reported, "the latest signal from one of the world's largest automakers that its future will depend heavily on electric car sales."

"This (plan) will require us – following the serious setback as a result of the diesel issue – to learn from mistakes made, rectify shortcomings and establish a corporate culture that is open, value-driven and rooted in integrity," chief executive officer Matthias Müller said in a statement.

Paired with the investment in sustainable transportation, the big buyback may prove a much-needed step to regain the American public's trust in the automaker. In Germany, however, the scandal has taken a particularly large toll, as The Christian Science Monitor reported in October:

Holger Geissler, a board member of the polling firm YouGov Germany in Cologne and editor of the new book 'What Makes Germans Tick,' notes that Volkswagen is part of the German identity, giving the scandal an almost existential nature. 'We see ourselves as very reliable people, very trustworthy, and hardworking,' he says. 'It does not fit our image to be dishonest.' "

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