VW Sets Payment Plan for Dealers Auto maker labors to reach accord with U.S. regulator on fix for 2- liter- engine vehicles

A service area at a Volkswagen dealership in Los Angeles in June.

Volkswagen AG reached an accord to help U. S. dealers affected by its diesel- emissions crisis while struggling to convince U. S. regulators to accept a fix for some half a million polluting vehicles on the road, even if they can’t be made fully compliant with emissions regulations.

The proposed deal with U. S. dealers, which will include a payout and other concessions, should help “to heal the wounds between the dealers and Volkswagen,” Steve Berman, an attorney for the dealers, told U. S. District Judge Charles Breyer in San Francisco. Judge Breyer set a Sept. 30 deadline to complete details of the dealer agreement.

Hinrich Woebcken, chief executive of Volkswagen’s North American business, called the agreement “a very important step in our commitment to making things right” in the U. S.

Since disclosing nearly a year ago that it installed devices in some 11 million dieselpowered vehicles worldwide to enable them to cheat emissions tests, Volkswagen has faced legal challenges around the globe.

In June, it reached a $ 15 billion agreement with the U. S. government and consumers of certain of the affected vehicles, but many steps still remain.

U.S. consumers are waiting to hear how Volkswagen proposes fixing the diesel- powered vehicles, which can emit up to 40 times the legal limits of nitrogen oxide.

So far, drivers of some 475,000 two- liter vehicles, including Jettas, Passats, Beetles, Golfs and Audi A3s dating back to model year 2009, have been given a choice between selling back their cars or waiting for an approved mechanical fix, on

top of additional compensation. Drivers of 85,000 threeliter vehicles— mainly SUVs and luxury Porsche and Audi models—haven't been made a similar offer, and the company indicated it hopes to be able to do a more traditional recall with that batch.

Robert Giuffra, an attorney representing Volkswagen, said on Thursday that the auto maker believes it can make the three- liter vehicles fully compliant with U. S. emissions standards, which he said isn’t the case with the two- liter models.

Mr. Giuffra said that for some of the vehicles, the fix could be as simple as a halfhour software repair. Others, especially earlier models, will be tougher, involving upgrading catalytic converters and various sensors, among other steps. “I can’t understate the complexity of this,” Mr. Giuffra told the court. “We are literally talking about 2 million lines of code.”

Judge Breyer gave Volkswagen until Oct. 24 to submit to regulators at the U. S. Environmental Protection Agency and California Air Resources Board a proposal on a subset of the three- liter vehicles.

Plaintiffs’ lawyers, meanwhile, are pushing for a trial date and want to discuss other settlement options for three-liter drivers, something Judge Breyer instructed the parties to begin doing as a contingency plan.

So far, regulators have yet to sign off on any technical repair for the two- liter vehicles and have conceded that even if the diesel vehicles aren’t 100% compliant with the standards they were certified to meet, they’ll let them stay on the roads.

That concession comes at a price for Volkswagen: As part of its proposed settlement, the auto maker must pay $ 2.7 billion into an environmental remediation fund and $ 2 billion to promote socalled zero- emission vehicle technology.

CARB and the Justice Department have said they expect the results of those programs to offset any additional polluting done by the diesel vehicles.

CARB, the California airpollution regulator, has estimated that the two- liter vehicles will see emissions reduced by between 80% and 90% through a modification, which still won’t bring them to full compliance.

Volkswagen and environmental regulators are vexed over what to do with the oldest diesel vehicles, so- called Generation 1 vehicles, according to a person familiar with the situation.

“It is extremely difficult to upgrade these vehicles to the latest emissions technology,” that person said. “They certainly won’t be 100% compliant.”

Volkswagen faces a series of rolling deadlines between now and next October to present fixes for the three generations of two-liter vehicles.

At the same time, Volkswagen is preparing for the possibility of hundreds of thousands of vehicles flooding back to dealerships once

Volkswagen and regulators are vexed over what to do with the oldest diesel vehicles.

the two- liter settlement receives the court’s final blessing, which could come as soon as Oct. 18.

Volkswagen received permission from Judge Breyer earlier this month to run a pilot program on 20 two-liter models to find an environmentally friendly way to scrap the vehicles and salvage their parts. Volkswagen is allowed to resell any returned vehicles in the U. S. or abroad if they undergo a governmentapproved modification, but experts in the $ 32 billion automotive recycling industry say used vehicles can sometimes be worth more when sold for parts than whole.

As it makes peace with consumers, Volkswagen is still in talks with the U.S. government over criminal and civil penalties.

The company also said this week it is in settlement talks with Maryland, Massachusetts, New York, Pennsylvania and Washington over alleged violations of state environmental laws.