Does VW 'goodwill' payment clause prevent owners from suing?

A Volkswagen grille, photographed during an auto show in Frankfurt, Germany.

Nov. 9, 2015 1:32 PM PT

Volkswagen is offering $500 in cash and $500 in VW dealer credit to owners of its diesel cars, a first step in compensating them in the wake of a global emissions-test cheating scandal.

The “goodwill package” is a stopgap measure while the automaker works on a way to fix the cars, which contain software designed to evade U.S. pollution regulations.

The automaker says customers don’t have to give up their right to sue the company – as thousands already are – but some attorneys are disputing that and warning customers not to sign an arbitration clause required to get the money.

“It is a complete end run around the litigation that is in place,” said Amy Williams-Derry, an attorney with Keller Rohrback, one of the law firm’s pursuing class action litigation against the automaker. “They are trying to buy off plaintiffs who have already sued and consumers who would benefit from a class-action recovery.”

Some of the hundreds of cases already filed seek to have VW buy back the vehicles for the full price the customers originally paid.

To get the money, VW customers must visit www.vwdieselinfo.com, enter their Vehicle Identification Number, their mileage and contact information. They will also have to take their car to a dealer to activate the gift cards to prove that they own the vehicle.

Customers will also get access to a free 24-hour roadside assistance program for three years.

To be eligible, consumers must be the registered owner or lessee of a Volkswagen diesel with the 2-liter TDI engine as of Nov. 8.

The company sold about 482,000 of the vehicles with the cheating software in the U.S. and up to 11 million worldwide. The diesels spew as much as 40 times the legal limit of nitrogen oxide in normal driving; the software hides those emissions when it detects test conditions.

VW faces a criminal investigation in the U.S. and potential federal Clean Air Act violation fines of up to $18 billion.

VW said the arbitration clause, buried in clause 11 of its lengthy “Goodwill Package Cardholder Agreements” – is part of the bank terms for the gift cards and is not designed to fool consumers into waiving their legal claims against Volkswagen.

But Williams-Derry cautioned that “the clause is worded extremely broadly, and the courts have history unfortunately of interpreting these clauses expansively.”

The agreement dictates that any arbitration must brought in Sioux Falls S.D., a location “that is an extremely inconvenient” for the vast majority of VW diesel car owners, Williams-Derry said.

Volkswagen officials characterized the plan as a way to help out customers while it figures out to bring the cars into compliance with air pollution rule.

“We are working tirelessly to develop an approved remedy for affected vehicles,” said Michael Horn, president and CEO of Volkswagen Group of America. “In the meantime, we are providing this Goodwill Package as a first step towards regaining our customers’ trust.”

The package also has a business purpose – by offering credit in addition to the cash, VW ensures that customers will need to make more trips to the dealer, which will reap $500 in revenue and get an opportunity to sell another vehicle.

U.S. Sens. Richard Blumenthal (D-Conn.) and Edward J. Markey (D-Mass.) blasted the package.

“This offer is an insultingly inadequate amount – a fig leaf attempting to hide the true depths of Volkswagen’s deception,” they said in a statement. “The company should state clearly and unequivocally that every owner has the right to sue. It should offer every owner who wants to keep her car full compensation for the loss of resale value, fuel economy, and other damage caused by its purposeful deception.”

The offer may not be as beneficial to some drivers. Jean Rowley of Huntington Beach bought an extended warranty on her 2013 TDI Beetle that lasts for at least five years, so she never spends money on minor repairs.

“I guess I’ve got to buy a lot of caps or shirts with $500,” said Rowley, 52.

Another customer, Sandra Farrell, said the amount offered in the package isn’t anywhere close to the loss in value for her 2014 Jetta SportWagen. Instead of cash and credit, she said she would rather have regular updates from VW on what they’re doing to fix the problem.

“I think that would have meant more to everyone,” said Farrell, a 58-year-old Vista, Calif. resident. “There’s a lot of issues they really need to address. I’d like to see them take a personal approach.”

The average auction prices of used VW diesel models have dropped nearly $2,100, or 16.1% since the September revelation the automaker had rigged pollution testing, according to car price information company Kelley Blue Book.

Affected owners must register for the package by April 30.

The offer is an important first step, but the automaker needs to do more, said Michelle Krebs, senior analyst at Autotrader.

“It has provided much-needed financial help to dealers who are on the frontlines handling customers and is paying some hefty incentives to buoy sales,” she said in a statement. “Volkswagen must lay out a plan on how it will fix affected cars.”

The consumer payment program “is a delay tactic by Volkswagen,” said Peter Bezek, a Santa Barbara attorney who has filed two lawsuits on behalf of 15 VW owners. “The issue is that they ran off with a truckload of money and they are trying to figure out how much they can keep.”

He said the “only solution” is for the automaker to buy back the cars.

Previously, Horn has said VW might consider a buyback program.

“There are a number of scenarios the company is looking at,” said VW spokesman Darryll Harrison Jr. said. “I can’t speculate on what decision the company will eventually make.”

Harrison said the German automaker is working with the California Air Resources Board and the Environmental Protection Agency to bring the cars into compliance with air pollution rules but can’t predict the outcome.

Meanwhile, Fitch Ratings downgraded Volkswagen AG’s long-term issuer default rating to BBB+ from A and said the long-term outlook was negative. Fitch Ratings said the appointment of “long-time insider” Matthias Mueller was unlikely to bring “outside views” into the company and that Mueller would have a hard time “changing the group’s decision-making process and culture.”

Mueller was chief executive of Porsche, which has now been implicated in the emissions scandal.

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