The portion of the tentative deal announced Thursday between Volkswagen Group, the U.S. federal government, and lawyers leading the private class-action litigation in the U.S. against the manufacturer comes to about $10.2 billion, according to a source familiar with the situation.
The “agreement in principle,” announced today by U.S. District Judge Charles Breyer in federal court in San Francisco, would attempt to resolve the company’s liability toward owners of about 480,000 2.0-liter diesel cars, from model years 2009 to 2016, which were equipped with illegal cheat software. The software concealed the fact that, under most real-world driving conditions, the cars emitted illegally high levels of oxides of nitrogen, or NOx, a pollutant that contributes to smog and aggravates or causes respiratory diseases.
The 2.0 liter cars include VW Jettas, Golfs, Passats, and Beetles, and also Audi A3s.
In addition to having been approved by the Department of Justice and the U.S. Federal Trade Commission, the deal has the approval of the California Air Resources Board—a key regulator for auto emissions and a group that played a key role in unearthing VW’s fraud in the first place—and the California Attorney General.
(For more on the Volkswagen scandal, read: Hoaxwagen, Inside VW’s Emissions Testing Scandal)
Although Volkswagen (VLKAY) stock—up about 11% for the week so far—has been climbing on rumors and news of the deal, the company does still face some substantial remaining monetary overhang from unresolved liabilities stemming from the scandal.
To begin with, the agreement—whose details Breyer has ordered to remain confidential for another 60 days, while they are still being hammered out—does not yet encompass the owners of about 85,000 3.0-liter vehicles also affected by the scandal. (These larger cars and SUVs include diesel versions of the VW Touareg, Porsche Cayenne, and Audi A6 Quattro, A7 Quattro, A8, A8L, Q5, and Q7.)
In addition, Judge Breyer said nothing today about the plaintiffs attorneys fees, so the deal presumably does not yet address those.
More important, the deal does not cover Volkswagen’s liability for federal civil fines and penalties.
Nor does it cover any potential federal criminal liability the manufacturer might face. (The Justice Department’s criminal probe continues.)
Finally, Volkswagen also remains exposed to potentially quite substantial civil fines and penalties under the laws of each U.S. state and territory, with the exception of California.
Still, the framework agreement does go a long way to address what Judge Breyer has made clear from the start was his most pressing concern: Many Volkswagen diesels are still out on the road today belching excessive quantities of harmful pollutants.
According to Breyer, the tentative deal will offer customers a choice of either a repair or a buyback of their vehicle plus an additional “substantial” monetary award from a compensation fund. (It was a surprise to many that the the 2.0 liter diesels were even capable of being adequately repaired, but the tentative deal, as described by Judge Breyer, suggests that both Volkswagen and regulators believe that they are.)
Though Breyer did not say so, a source close to the situation tells Fortune that, for those who elect to take a buyback, the buyback price would be each vehicle’s pre-scandal fair market value, as determined by some benchmark estimate, like Kelley Blue Book or NADA.
The additional cash sum a customer would receive would likely be between 20% and 40% of the car’s benchmark value, according to a second source.
Those who are currently leasing 2.0-liter diesels would be permitted to cancel their leases, and also receive a cash award.
It is anticipated that the compensation program will be administered by Ken Feinberg, who was retained by Volkswagen last December to eventually play a role like this. (Feinberg administered the September 11 Victim Compensation Fund and the GM ignition switch voluntary settlement program, among others.)
On top of the customer compensation, Breyer said, the deal also contemplates that Volkswagen will set up a fund “to promote green automotive technologies.”
Even though the deal does not legally address, satisfy, or nullify any of Volkswagen’s liability to the states, it cannot but have, as a practical matter, a positive, mitigating impact on the company’s exposure there, too. When assessing state penalties or fines, state judges are likely to be more lenient in the face of the company’s ability to argue credibly that it has acted rapidly and in good-faith to satisfy federal regulators and to make its bilked customers whole through Thursday’s settlement.
Judge Breyer instructed the government to set the agreement to writing and file it by June 21, and he scheduled a hearing for July 26. He stressed that all class members and other stakeholders will have an opportunity to voice objections and make suggestions before he will approve it.
The deal’s size was reported earlier in the day by Bloomberg.
