“Dealers getting a cut of what they deserve” – VW agrees to pay up to $1.2 billion to its U.S. dealers over car emissions scandal

Here comes Volkswagen’s plans to get back into the good books!

Since the car emissions scandal broke back in September 2015, there has been fury amongst vehicle owners and dealers alike. With U.K. vehicle owners becoming increasingly frustrated at VW’s lack of remedial action, the same cannot be said for the U.S.

And this now includes the dealers!

Just recently, VW announced a $1.21 billion compensation package for 652 dealers in the U.S. The compensation is for the German manufacturer’s wrongdoing of creating and installing the “defeat devices” in vehicles which allowed emissions to be seen as lower when they were being tested.

This affected 11 million diesel vehicles worldwide.

You can probably see the reason why the franchised dealers were negatively affected by the scandal. Who would want to purchase a vehicle from a dealership that has been selling these ‘cheating cars’?

It could be a psychological thing. We may be induced to believe that vehicles being sold from that dealership are probably equipped with several other vehicles of the same nature. Or, perhaps, that they knew about the devices. If this is true, we probably would not want to return to that dealer. Therefore this would give the dealership a negative reputation.

As part of the $16.5 billion settlement plan, VW U.S. has agreed to pay $1.85 million over a time span of 18 months to the dealers. Along with the $1.85 million settlement, VW has offered incentive payments; buy back on the diesel vehicles that cannot be sold any more; and suspended capital improvements for two years that they required the dealers to make. It seems that the dealers have struck gold. But, all is not what it seems. Most dealerships have built and established their value and reputation over a period of time, and the scandal could have had a negative image on the dealership. Although the dealerships did not have any knowledge of the ‘cheating’ vehicles, most customers may possibly associate them to VW’s wrongdoing.

Dealerships legal action

The dealerships also sued for fraud back in April for the drop in the value of the vehicles, and any domino effect it has had on selling new models. This was due to the ban that was imposed on VW on selling any more VW diesel engines without them being rigorously tested by regulators.

VW has issued a statement to accompany the settlement to resolve “alleged past, current and future claims of losses in franchise value”. Hopefully this shows that they understand that, by equipping the “defeat device” into the vehicles, this caused great losses to the dealers.

The losses caused to the individuals and dealers are not just financial. Compensation could be made for the distress caused to them, either by being falsely misled by the German automakers, or for the potential decline in value of their dealerships. Financial compensation is the least that they could offer.

Along with this settlement for 652 dealers in the U.S., VW has settled owner claims as well, with $86 million set to be paid for the damage it caused to millions of affected vehicle owners in California. This may not be the end to VW’s financial turbulent ride as they still face billions of dollars in potential fines across the globe, with South Korea, Australia and Italy bringing criminal investigations against the VW Group as well.

Although VW has agreed to the settlement, it is subject to Federal Judge Charles Breyer’s approval. From the previous settlement plans, the federal judge is seen to be claimant friendly and would like to offer remedial actions to those who are affected by the scandal. It’s likely that the federal judge will continue to offer their support in penalising VW. The filing was given a red flag to press the court to approve of the deal, which could be as soon as October 18.

This will no doubt give food for thought for remedial action in the U.K.