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Volkswagen Plans "Generous" Compensation for Diesel Owners. But When?

By John Rosevear - Feb 8, 2016 at 4:40PM

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The chief of VW's planned settlement fund said in an interview that compensation for VW diesel owners would be "generous." But he can't start paying out settlements until VW and the Feds agree on a recall plan.

Image source: Volkswagen.

Volkswagen (VWAGY 2.75%) will offer "generous" compensation to the approximately 600,000 U.S. owners of diesel-powered VW Group vehicles with emissions that exceed U.S. legal limits, the administrator of VW's settlement fund said.

What's happening: Kenneth Feinberg, the attorney hired by VW to administer a compensation fund for owners of diesel vehicles that don't comply with U.S. laws, told the Frankfurter Allgemeine Sonntagszeitung newspaper in an interview that the fund would provide generous compensation to the vehicles' owners once it was up and running.

Feinberg has become well-known for administering huge settlement funds. Among others, he managed funds that provided compensation to victims of the September 11, 2001, attacks, the BP oil spill in the Gulf of Mexico, and General Motors' defective ignition switches. 

In all of those cases, he noted, more than 90% of the victims accepted the funds' offers. That will be his target with Volkswagen, he said. 

Feinberg said VW hasn't yet decided whether that compensation will consist of cash, replacement vehicles, or offers to buy back the affected cars. He said VW is very serious about the effort and that he is currently spending 85% of his time working with the German auto giant. 

Feinberg said in December that he expected payments from the fund to start with "60 to 90 days." But he walked back that timeline a bit in the interview, saying he won't be able to start until VW and the U.S. authorities agree on a plan to recall and repair (or buy back) the affected vehicles. 

"My hands are tied," he said. 

What it means for Volkswagen: Hiring Feinberg was a shrewd move by VW CEO Matthias Mueller. Feinberg's past efforts give the VW settlement fund instant credibility, both with the general public and with the attorneys representing owners of the affected vehicles.

But as with every other aspect of this scandal, VW isn't helping itself by dragging its feet. The sooner it comes to terms with U.S. regulators, the sooner it gives car owners an idea of what to expect (in terms of both repairs and compensation), and the sooner it lets investors know what all of this is ultimately going to cost, the better off it will be.

To be fair, Mueller hasn't been sitting on his hands. His shakeup of VW's executive suite continued on Monday, with news that quality chief Frank Tuch will be replaced by his predecessor, longtime VW executive Hans-Joachim Rothenpieler. Tuch was one of several high-ranking VW executives said to have been "suspended," or put on paid leave, shortly after the diesel-cheating scandal first broke in September

What happens next: We continue to wait for VW, the U.S. Environmental Protection Agency (EPA), and the California Air Resources Board (CARB), to come to agreement on a plan to start recalling and repairing the affected vehicles in the United States.

EPA and CARB officials have hinted that they may require VW to buy back some of the affected vehicles. Such a buyback could cost as much as several billion dollars, depending on the number of vehicles in question. 

That's just one of several questions we need answered before we can evaluate the ultimate impact of this mess on VW's finances -- and start to figure out at what price (if any) VW's beaten-up shares start to look like a good buy. 

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