Ever since the Volkswagen diesel scandal broke in September of 2015, there’s been rampant speculation about what Volkswagen would do to fix the problems and compensate owners of diesels vehicles that don’t comply with U.S. emissions standards. Truth is, nobody outside of the settlement talks knows what the final agreement will include, though you’ll find no shortage of people who are convinced that they know all the facts.
Volkswagen has admitted to using a “defeat device” that enables their cars to operate in different modes, depending on whether they are on the road or undergoing testing.
The company cheated on testing that involves 482,000 four-cylinder cars and another 90,000 V6 diesel-powered vehicles. In April it was announced that Volkswagen had reached a settlement with the U.S. Environmental Protection Agency concerning the four-cylinder diesels, but details were not released and a gag order was invoked by the federal judge involved in the case. They’re due back in court on June 21, and after that hearing we should get our first concrete information about what the settlement contains.
Settlement components that are widely expected include a buyback offer for the first-generation of the 2.0-liter diesel engine-powered vehicles with the buyback price pegged to the value of the cars just before the emissions cheating scandal broke, plus some bonus settlement cash in return for a promise not to sue the company. Lessees would have the opportunity to terminate their leases without penalty.
Owners of second- and third -generation four-cylinder diesels will likely be offered an opportunity to have their cars modified to meet emissions standards, plus some bonus settlement cash.
No settlement covering the 90,000 V6 models has been announced.
Are Volkswagens a Good Value?
So, should you go out and buy a Volkswagen diesel today? Some might consider diesel Volkswagens undervalued, especially with a deal in the works to buy them back or alter them so that they meet emissions standards. Other than the significant issue that they produce nitrogen oxide at a much higher level than the law allows, they still operate fine, with good performance and phenomenal efficiency.
According to Kelley Blue Book, the value at auction for diesel Volkswagens has plummeted 21.8 percent since a month before the diesel scandal broke in September 2015. Over that same period, the value of nondiesel VWs has only dropped 9.8 percent.
If you like any of the models affected by the scandal, now might be the time to get a great deal on one. Actually buying one may not be that simple, however. First, you’ll have to find one from a private party, as a used car from an independent dealer, at auction, or as a noncertified used car from a VW dealer. Since shortly after the scandal broke, Volkswagen and Audi dealers have been unable to sell new or certified used diesel vehicles.
Diesel VWs aren’t the only VW models you can get a deal on now. You can also find deals on new nondiesel Volkswagens. The diesel scandal has damaged the company’s reputation in the marketplace, and they aren’t selling the rest of their cars as fast as they would like to. Volkswagen offers some compelling products including the Golf R, GTI, and Golf Sportwagen.
“All sedans are being pressured by the shift to trucks and SUVs anyway,” says Kelley Blue Book senior analyst Karl Brauer in an interview with U.S. News. “Really it’s a good time to buy anything that’s not a truck or SUV, but it’s probably even a better time to buy a Volkswagen nontruck or SUV – if you’re looking for a good deal on a well-engineered car.”
Where you live could affect whether you decide to buy a VW diesel or not. If your state has stringent emissions testing requirements, your ability to renew a VW diesel’s registration could be restricted, forcing you to sell the car back to Volkswagen or allowing the company to modify the car.
However, states with less stringent emissions testing requirements, like Montana, may become sanctuaries for unmodified diesel VWs. Brauer sees the real possibility of differing regional values for the cars, based on the testing requirements. “They run fine, and those states don’t care about the particulates coming out of the tailpipe,” he says.
Investing in Volkswagens
Some have suggested the idea of buying Volkswagen diesels as an investment. You simply buy one or more at the depressed price. Then you hope that as part of the Volkswagen diesel settlement the company offers to buy it back from you at the car’s value before the scandal broke, perhaps with some extra cash to sweeten the deal. Potentially, that could be a profit of thousands of dollars.
As enticing as the “hedging Jettas” idea might be, it’s rather risky. It’s hard to imagine that VW hasn’t anticipated the speculative behavior and included language that prevents it in any settlement. They would likely want to compensate the person who lost the value, rather than a speculator. Whether that’s the original buyer or the owner at the time the scandal broke is one of the details that isn’t yet known.
“I think that might be a little risky because of the variables that are still in play,” says Brauer. “If you found someone willing to sell you one of the cars with the first gen engines – they’re not hard to find – maybe you could somehow come out ahead, but I suspect that you maybe have to have some proof of what you paid.”
There are three generations of four-cylinder diesel VWs involved in the scandal. Of those, generations two and three are expected to require fairly minor fixes to be compliant. Generation one cars, however, are likely to be too expensive to cost-effectively modify and are the most likely vehicles to be part of a buyback deal.
It’s unknown how Volkswagen could enforce any buyback proposal, short of having the federal government somehow mandate that the cars cannot be re-registered in any state. Many VW customers love their super-efficient diesels and will resist any program that takes them away or alters the things that make their cars special to them.
Risks and Opportunities
There’s at least one significant risk in keeping your diesel VW and allowing it to be modified. If those modifications significantly change how your car performs or substantially reduces its efficiency, then its value will likely continue to plummet.
“I would hate to be the person who says ‘I’m keeping it because I love it’, then taking it to the dealer to be ‘fixed,’ and then you get it back and say, ‘I should have sold it,’” says Brauer.
If you love how your car drives, are not forced to make the changes, and plan to keep the car forever (as many diesel owners do), you shouldn’t be concerned about its resale value.
In a perfect world, owners could have the modification done and then drive the car for some time before deciding whether to sell it back or not. That option is not likely to be offered, however. Fortunately, early adopters of any modifications will quickly know how they impact performance, and that information will spread like wildfire among diesel owners.
Some owners are already talking about simply accepting the fix, taking the compensation from Volkswagen, and then backing the changes out. They predict that it could be done by replacing the car’s computer with one from a salvage yard or installing components from a third-party company that has decoded the changes so that they can “re-chip” your car back to its original condition. Depending on the emissions test run by their state, such a “de-modification” might be undetectable.
Some owners are claiming that they will not be made whole unless Volkswagen pays them back the entire price that they paid for the car when it was new. There’s little chance of that happening, according to industry observers, though some class-action attorneys might disagree.
“The bottom line is, as the owner of the car, you’ve used it, and it still served your purposes. It didn’t really stop serving your purposes after all of this information came out in September. It still ran the same way that it had always run,” says Brauer. “So your only possible loss was a loss in resale value, and even that doesn’t materialize until you try to sell the vehicle, and it isn’t worth as much as it otherwise might have been.
“You’re essentially saying ‘I want all that for free,’ and I don’t think any legal judgements are going to support that position,” he says.
There are certain to be owners who lose out with any possible settlement. If you took out an eight-year or longer car loan in the last few years or rolled the balance of another car loan on top of your Volkswagen diesel purchase, the settlement might not cover your loan balance or give you enough after you pay off the loan to get into a new car.
We’ll know a lot more after June 21, when the details of the settlement are unsealed. There will then be a public comment period until late July, when the settlement is finalized.