By the time this article is published, we hope to have final approval of the settlement agreement between VW and its dealers with regard to VW’s use of defect devices in diesel vehicles resulting from a hearing being held before the Judge on January 18, 2017. The road to completion of this settlement has been a long and winding one.
On September 18, 2015, it became public knowledge that Volkswagen of America and its parent company, Volkswagen AG, had utilized a defeat device in its 2.0 and 3.0 liter diesel engine vehicles to avoid emissions detection. Over the course of the next several months a number of consumer and non-franchised dealership lawsuits were filed against VW for damages resulting from the fraudulently manufactured vehicles. All the cases were consolidated before one federal Judge in San Francisco. Not a single franchised VW dealership brought suit despite franchise values plummeting to a close to zero goodwill multiple. Instead, dealers were waiting to see what VW was going to do to compensate them for the loss of franchise value which resulted from the diesel-gate scandal.
Following months of waiting and no mention of compensation to the dealers at the 2016 NADA VW-make meeting, dealers’ patience had worn thin. Within days of the NADA meeting in Las Vegas, the Napleton dealerships filed a class action lawsuit against VW for damages resulting from diesel-gate. At the same time, a group of dealers appointed by dealers at the VW-make meeting were tasked with negotiating a settlement with VW. Those dealers, known as the Dealer Investment Committee, were located across the country and varied in size from a single-point, small volume VW store to multiple high volume metro stores.
“The Settlement Agreement provided a cash payment of $1.208 Billion split amongst 652 eligible VW dealerships…”
After many meetings and conference calls, a Settlement Agreement was reached in September and given preliminary approval by the federal Judge in October. The Settlement Agreement provided a cash payment of $1.208 Billion split amongst 652 eligible VW dealerships depending upon vehicles-in-operation criteria. Those payments are to be made one half up front and the remainder spread equally over 18 months. In addition, eligible dealers are guaranteed the highest level of certain monthly per car sales and CSI incentives for 12 months. Dealers will also be protected from any requirement to make facility investments for a period of 24 months, to include such requirements being placed upon the purchaser of a VW dealership during that time. Lastly, VW agreed to purchase affected new vehicles for which there is no approved fix from dealers at the dealership’s net wholesale cost and for affected used vehicles at the same compensation level as the repurchase of vehicles from consumers (i.e. several thousand dollars over cost).
Only 7 dealerships out of the 652 eligible dealerships chose to opt-out of the settlement. A great debt of gratitude is owed to the Napleton dealerships for having the fortitude to bring the initial legal claims against VW and to the Dealer Investment Committee for the tireless work in negotiating the very favorable settlement terms with VW.
VW dealers should also be aware that legal claims against Robert Bosch GmbH and Robert Bosch LLC, suspected designers of the defect device, are still pending.
What about Audi’s Diesel-Gate and Gasoline-Gate?
In addition to including defeat devices in their diesel engines (like VW), Audi of America is now suspected of distributing gasoline-powered vehicles to U.S. dealerships containing a similar defeat device.
The specifics of the use of defeat devices in the gasoline-powered vehicles are still under investigation but suffice to say that Audi dealers have the same rights as VW dealers to bring legal action for damage to the Audi brand resulting from the use of defeat devices in Audi vehicles. Audi dealers have lost sales by being forced to forego the sale of the affected diesel vehicles and, if proven out, will be forced to forego the sale of a number of gasoline-powered vehicles. Audi of America and its parent company, Volkswagen A.G., should not be permitted to get away with committing this fraud on their dealers who have invested millions of dollars in the Audi brand.
Author: Richard Sox
Richard Sox is a lawyer with the firm of Bass Sox Mercer PA (formerly known as Myers & Fuller PA).