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07 May

VW to pay $1.6 billion to US dealers hurt by diesel emissions scandal

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Not that long ago, Volkswagen dealerships were among the hottest properties in the retail auto business.

The German brand was growing rapidly, and an ambitious goal of tripling sales in the United States to more than 800,000 cars a year seemed within reach, helped by increasingly popular diesel models and a new plant in Chattanooga, Tennessee. With the future looking bright, buyers as recently as 2014 typically paid premiums of $US3 million ($3.9 million) to $US4 million to acquire Volkswagen franchises in the United States.

But the diesel scandal that erupted almost a year ago, setting off a plunge in Volkswagen sales, changed all that. Some dealers who tried to sell their franchises in the last year found their dealerships were worth little more than the value of the land they stood on and their inventory of cars and spare parts, according to brokers involved in dealership sales.

Now help is on the way.

On Thursday, Volkswagen told a federal judge it had reached a basic agreement to compensate its 650 dealers in the United States for the troubles they have suffered.

The company declined to disclose specific terms of the pact, saying they were still being determined, but a person briefed on the matter said the company was prepared to pay as much as $US1.2 billion to offset the declining value of the Volkswagen franchises.

That figure, on top of whatever Volkswagen will end up spending to buy back unsold and unfixable diesels from the dealers, would work out to an average of $US1.85 million per dealer – although the amounts will vary, depending on the size of the dealership and other factors.

“We believe this agreement in principle with Volkswagen dealers is a very important step in our commitment to making things right for all our stakeholders in the United States,” Hinrich Woebcken, chief executive of Volkswagen’s North American operations, said in a statement. Sitting on unsold stock

The agreement with dealers was described in general terms in court in San Francisco on Thursday before the federal judge, Charles Breyer, who is overseeing the cases against Volkswagen by the government, car owners and the dealers.

”They have cars on their lots they can’t sell,” Steve Berman, the lawyer for the dealers, told Breyer. “Their franchise value has gone down. And they have invested millions in these Volkswagen franchises. So we are pleased that the settlement will address the financial harm that they’ve incurred.”

Volkswagen fell into turmoil last September after admitting it had equipped nearly 600,000 diesel models sold in the United States with “defeat device” software that allowed the cars to cheat on emissions tests and spew far more pollutants than allowed in regular driving.

The deal with its car dealers comes some two months after the German carmaker agreed to pay nearly $US15 billion, a record, to settle claims in the US by Volkswagen owners and regulators.

In June the company, government and lawyers for car owners reached a settlement covering some 500,000 cars equipped with 2.0-litre diesel engines. Under that accord, the company will spend as much as $US10 billion to buy back affected cars at their prescandal values and pay additional cash compensation to owners. Models include the Volkswagen Jetta and Passat.

Lawyers for the company and the government who were in the courtroom Thursday told Breyer that they were still working on how to fix or otherwise resolve the status of about 80,000 Volkswagen Audi and Porsche models with 3.0-litre diesel engines that were equipped with emissions-cheating software. ‘Big, big hit’

The dealer settlement announced Thursday stems from a lawsuit filed in April by the owner of three Volkswagen franchises, seeking compensation for the economic damage to the dealerships.

One of the potential beneficiaries, Jeff Williams, owner of Williams Auto World in Lansing, Michigan, said on Thursday that he welcomed the compensation agreement but that the toll on his business had been heavy.

“In 2012, we sold 477 new Volkswagens,” Williams said. “So far this year, we’ve sold 86 new. That’s a big, big hit.”

But he expressed hope for 2017. Next spring, Volkswagen is expected to introduce an all-new gasoline-powered sport utility vehicle, which had been sorely missing from the Volkswagen lineup. “Once we get some SUVs, that ought to kick-start things,” Williams said.

In 2015, the Volkswagen brand sold nearly 350,000 cars in the United States, down from 438,134 in 2012. But most of the 2015 sales were made before the diesel cheating was disclosed. In the first seven months of this year, Volkswagen sales have slipped 13.6 per cent to 205,742 vehicles.

For dealers, that decline is compounded by the fact that many invested millions of dollars to expand their stores in expectation of rising sales.

“VW said the dealers needed bigger facilities because they were going to be a volume player,” said Alan Haig, president of Haig Partners, a dealership advisory firm in Fort Lauderdale, Florida. “So this has been a disastrous turn of events for them.”

The New York Times

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