VW car buyback would speed emissions-scandal exit

February 23, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Volkswagen’s dieselgate has turned into a two-speed scandal. The carmaker has found a cheap way to fix 8.5 million pollution-spewing vehicles to the satisfaction of European regulators, but appeasing Uncle Sam is proving elusive. Five months after getting caught cheating on emissions tests, VW’s best option may be to buy back the worst of the offending clunkers.

Other solutions are looking unrealistic. The Environmental Protection Agency and other U.S. watchdogs have rejected company proposals for bringing the diesel autos into compliance. Negotiations are expected to drag on through the end of March. Meanwhile, the potential cost of fines, lawsuits and car recalls is adding up.

Buybacks would pull polluting vehicles off the road far more quickly than a recall could and might win goodwill from regulators while soothing angry customers. Car owners who accepted the deal would waive their legal claims, allowing VW to avoid paying billions of dollars in damages.

The issue for Chief Executive Matthias Mueller would be the expense. Chrysler’s major recall of RAM trucks and Dodge autos in 2015 offers some guidance: drivers were offered the book value of vehicles plus 10 percent or more of that amount.

In VW’s case, the biggest problem is some 325,000 ageing vehicles, like the 2009 Jetta TDI, that can’t comply with U.S. emissions rules without complex hardware changes. Based on an estimated average purchase price of 23,000 euros and average depreciation of 50 percent, the total bill for repurchasing those models would be around 4.2 billion euros ($4.6 billion). The bill would be less if some owners agreed to put the buyback price toward a new VW.

The company would still be left with fixing 255,000 newer diesel cars in the United States. But it has already set aside 6.7 billion euros for the cost of recalls, and revamping non-U.S. vehicles will run less than a billion euros, according to Citigroup analysts. So the expense of buying back autos would add a relatively small amount to what’s already on reserve. And Volkswagen could afford to spend 10 billion euros on top of the 6.7 billion on reserve without affecting its credit rating, according to Standard & Poor’s.

The biggest expense might be the hit to VW’s pride in its engineering. On the whole, though, a buyback could be money well spent.

4 comments

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I would say buy back the cars and “resell” the vehicles to brokers in countries where they pass local regulations…That is the most economical way out for VW.

Posted by Rolandus | Report as abusive

The fact they are not doing anything is making me regret ever owning a VW. I will not allow anyone in my family to own another VW.

Posted by joewat64 | Report as abusive

VW needs to give owners their full purchase price back.
Anything less is just criminal, which we already know that this is.

They intentionally sold a product with false specifications. Owners should be able to return the product and get their money back. The fact that owners have used the product is irrelevant in this situation.

The solution should be punitive to VW. And the beneficiaries should be affected owners, not lawyers and governments.

Posted by cyy | Report as abusive

I own 2 offending TDIs and would gladly sell them to VW but the “book” price has been on an accelerated decline since the violation was exposed. My price would be based on a private sale value calculated by the “natural” depreciation rate for the pre diesel-gate period. If their offer is less, I’ll let the judge decide.

Posted by Ricarlo | Report as abusive