Volkswagen AG (ADR) (OTCMKTS:VLKAY) has a struck a deal with regulators in the US over its long-running emission scandal. The German automaker has reportedly agreed to set aside $10 billion that will cater to civil claims lodged by the government and car owners.
Settlement Terms
There are also reports the automaker has offered to buy back some of the cars at the center of the scandal. German newspaper, Die Welt reports that affected car owners could be given as much as $5,000 as compensation for being sold cars that pollute too much.
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Volkswagen AG (ADR) (OTCMKTS:VLKAY) will also have to create a national and California fund that will cater for past and future environmental damage as part of the deal. The agreement is a milestone achievement as it could help the automaker avoid trial. Federal Judge Charles Breyer had set April 21 as the deadline for the automaker to outline how it planned to fix affected cars.
It is still unclear whether the $10 billion set-aside will resolve all claims against the automaker in the country. Volkswagen had initially set aside $7.6 billion that was to cater to recalls in the US.
Soaring Costs
Brandon Banes, analysts at Bloomberg Intelligence believes the maximum penalty could reach highs of $42 billion. The cost of buying back all the vehicles affected in the US, on the other hand, could cost highs of $9.4 billion. Evercore ISI expects total costs to rise to highs of 30 billion euros on facing financial penalties from ongoing criminal probes.
Amidst the uncertainties, the agreement is still an achievement for Volkswagen. The carmaker is currently trying to appease customers and regulators as to its reputation having been dealt a big blow. It has already started an internal investigation as it looks to find out who knew of the problem way before regulators lodged the claims. Adding to the internal investigations prosecutors around the world are also looking into the matter.