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Volkswagen Begins Buyback of Tainted Vehicles

Owners of 2-liter diesel engine Volkswagens tainted by emissions cheating software have filed more than 383,000 claims for buybacks or modifications, worth more than $4.7 billion, an attorney told a federal judge on Wednesday.

SAN FRANCISCO (CN) – Owners of 2-liter diesel engine Volkswagens tainted by emissions cheating software have filed more than 383,000 claims for buybacks or modifications, worth more than $4.7 billion, an attorney told a federal judge on Wednesday.

The figures were revealed one week after Volkswagen pleaded guilty to conspiring to defraud U.S. regulators and consumers, paying $4.3 billion in fines. Six of its former executives also face criminal charges for the fraud.

The German automaker admitted to installing defeat devices in about 11 million vehicles worldwide, more than half a million sold in the United States. The defeat devices enabled cars to cheat emission tests while spewing up to 40 times more nitrogen oxide (NOx) on the road than allowed under federal law.

Attorney Elizabeth Cabraser, representing a class of consumers and dealerships aggrieved by the "diesel-gate" scandal, delivered the set of claims numbers to U.S. District Judge Charles Breyer during a hearing Wednesday morning.

The claims were filed as part of a $14.7 billion settlement finalized in October, in which Volkswagen agreed to buy back or modify 482,000 2-liter diesel engine vehicles.

Volkswagen also agreed to pay $2225 million to settle claims over 83,000 3-liter diesel engine vehicles last month. A hearing on the motion for preliminary approval of that settlement is scheduled for Jan. 31.

Attorney Robert Giuffra Jr., representing Volkswagen, said the company has offered to buy back 267,000 2-liter diesel engine vehicles, worth $4.7 billion, and that 96,000 buybacks or lease terminations are expected to occur by the end of January.

On Jan. 6, the EPA and California Air Resources Board approved a fix for about 70,000 "Generation 3" 2-liter diesel engine vehicles, including 2015 models of the Volkswagen Beetle, Beetle Convertible, Golf, Golf SportWagen, Jetta, and Passat, and Audi A3.

The modifications involve a 2-phase solution of software changes and the installation of new hardware, including a new diesel particulate filter, diesel oxidation catalyst, and NOx catalyst.

Also on Wednesday, Breyer postponed granting final approval to a $1.19 billion settlement between Volkswagen and 637 of its 651 U.S. dealerships.

Under terms of the proposed deal, each dealership will receive about $1.85 million to make up for lost revenue caused by the emissions scandal.

Volkswagen also agreed to maintain its prior financial support payments of $600 per car sold to dealerships, worth approximately $14.4 million per month.

Additionally, the German automaker will freeze requirements for dealerships to make capital investments until November 2018, and it will repurchase from dealers any diesel-engine vehicles for which it cannot provide an approved emissions modification.

Tom Smith, who owns a dealership in Wilmington, Delaware, traveled to San Francisco to object to the way the settlement funds are allocated. The formula compensates dealers based on how many affected vehicles are in operation in their area of influence, rather than on the number of vehicles sold.

Smith argued that Volkswagen won’t properly compensate him for vehicles in an "open-point area," a region not covered by an official dealership, just 1.5 miles away from his business location.

But Volkswagen attorney Robert Giuffra said the formula was designed to compensate dealers in the fairest manner possible and that compensation based on regions and "on-point areas" resulted from extensive prior negotiations over Smith's franchise agreement with Volkswagen.

"The dealers are very important to Volkswagen," Giuffra said. "Volkswagen has been in operation in the states for 60 years, and we really want to build stronger relationships than we've even had before with our dealer network."

The owner of Palisades Volkswagen in Nyack, New York, also objected to releasing Volkswagen from claims unrelated to the diesel emissions scandal. The Palisades dealership sued Volkswagen in 2013, claiming it set unfair sales goals and gave a competing dealer an unfair advantage, allowing it to obtain more favorable vehicle pricing.

Steve Berman, lead counsel for the dealership class, said the parties will file an addendum to the agreement so that the Palisades dealership and others can pursue unrelated claims against Volkswagen that were filed prior to April 2016.

Breyer set a deadline for that amendment to be filed by Jan. 20, and said he would issue a ruling on the motion for final settlement approval "soon."

Berman and Cabraser are with Lieff Cabraser Heimann & Bernstein in San Francisco.

Giuffra is with Sullivan & Cromwell in New York.

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