In the terms of a settlement that were revealed in San Francisco Thursday, Volkswagen (VLKAY, Financial) has agreed to repurchase or repair nearly half a million diesel-operated vehicles in the U.S. that were equipped with devices to disguise their emissions.
Whichever option vehicle owners choose, it has been reported by several sources that, as part of the settlement, the vehicle owners also will be given cash through a compensation fund.
“The compensation fund is expected to represent more than $1 billion on top of the cost of buying back the vehicles,” Reuters reported, “but it is not clear how much each owner might receive.”
Federal Judge Charles Breyer disclosed no details about the compensation settled on in the agreement between Volkswagen, the federal government and attorneys for the plaintiffs in the case, and relatively few details of the general agreement were revealed, either, but he described the compensation as “substantial.” Multiple sources have cited a figure of $5,000 per vehicle.
More than 480,000 Volkswagens with 2-liter, four-cylinder diesel engines, most of them VW Jetta, Golf and Passat models dating to the 2009 model year, were equipped with software enabling them to cheat on emissions tests.
In September 2015 the Environmental Protection Agency announced it had determined that Volkswagen deliberately programmed turbocharged direct injection diesel engines to activate emissions controls only during emissions testing. The software allowed the vehicles to meet emissions standards while emitting up to 40 times more nitrogen oxide when being operated on the road.
Volkswagen acknowledged installing the software in 11 million vehicles worldwide, prompting a flurry of lawsuits. Volkswagen told its shareholders at the time that it was setting aside more than $7 billion to cover the costs of repairing or repurchasing the affected vehicles, but most observers have said that amount would be far too low. Volkswagen faces more than $20 billion in fines for violations of the Clean Air Act before it can begin the process of repairing or repurchasing the vehicles.
When it was announced Wednesday that the framework of a deal had been reached, Volkswagen’s shares in the U.S. went up 6% to $30.95.
Volkswagen has a P/E of 11.5, a forward P/E of 1.2, a P/B of 0.7 and a P/S of 0.3. GuruFocus gives Volkswagen a Financial Strength rating of 4/10 and a Profitability and Growth rating of 5/10.
Volkswagen sold for $31.15 per share Thursday.
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