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Volkswagen AG will probably miss a Thursday court deadline to reach a comprehensive agreement with U.S. authorities over its tainted diesel engines, possibly exposing the carmaker to daily fines and other sanctions.
While talks have intensified in recent days, Volkswagen and U.S. officials have yet to reach final terms for fixes and compensation related to the manufacturer’s cheating on diesel pollution tests, according to people familiar with the negotiations, who asked not to be named because the discussions are private. U.S. regulators want assurances that the repairs will last, as well as the option for owners to sell the cars back to Volkswagen. Deliberations are continuing, and a last-minute deal could still be reached.
The carmaker is facing a deadline set by a federal judge in San Francisco. Without an agreement, U.S. District Judge Charles Breyer has several options at a hearing Thursday, including ordering the nearly 600,000 affected cars in the U.S. off the road and fining the German carmaker each day until it takes action. Volkswagen could also seek an extension to hammer out a deal.
Judge Breyer’s order showed “he really wanted to see something concrete,” said Carl Tobias, a law professor at the University of Richmond. “I doubt that he wants to do something so Draconian, but he’s right, this has just dragged on and on.”
Breyer might delay any penalties or orders until holding another hearing, Tobias said. This would give Volkswagen notice on what he intends to do and allow the company to show why such measures shouldn’t be imposed, he said.
Volkswagen spokesman Eric Felber declined to comment, saying the talks with U.S. authorities are confidential. Laura Allen, deputy press secretary at the Environmental Protection Agency, declined to comment. David Clegern, a spokesman for the California Air Resources Board, said in an e-mail there’s nothing the agency can say “at this point.” Mark Abueg, a spokesman for the Department of Justice, also declined to comment.
The broad framework of the agreement being negotiated includes creating national and California funds to make amends for past and future environmental damage and solutions to reduce the pollution from the affected vehicles or remove them from the road, people familiar with the talks have said. The cost of buying back all the affected vehicles could total $9.4 billion, according to Bloomberg Intelligence analyst Brandon Barnes.
Regulatory fines and lawsuits in the U.S. pose an even bigger financial risk. Volkswagen could face a worst-case scenario of $46 billion in penalties for equipping diesel engines with software designed to sidestep emissions tests, according to Bloomberg Intelligence estimates. A settlement could help reduce that financial hit significantly.
The scandal has worsened Volkswagen’s already weak position in North America, where Europe’s biggest automaker has failed to become more than a niche player. The company has been forced to halt sales of diesel vehicles, which account for some 20 percent of the VW brand’s lineup in the region.
A settlement would free Volkswagen to focus more on overhauling its products and operations in the U.S. Plans include updating models every five years instead of seven, adding sport utility vehicles and buying more parts locally. And engineers at VW’s only U.S. factory, in Chattanooga, Tennessee, will steer the new projects, reversing the failed pattern of planning cars for the North American market at the automaker’s headquarters in Wolfsburg, Germany.
The case is In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices and Products Liability Litigation, MDL 2672, U.S. District Court, Northern District of California (San Francisco).