Supply Chain Matters provides a further update regarding the ongoing brand crisis involving Volkswagen, specifically its customers and franchised dealers over the diesel engine emissions alteration admission scandal that occurred over a year ago, and that continues to move toward action plans and financial compensation.

Yesterday the global auto maker was granted final court approval related to a $14.7 billion settlement with U.S. based consumers, dealers and government agencies.

This agreement allocates upwards of $10 billion to allow the 475,000 existing owners of two-liter powered diesel vehicles the option of either selling back their vehicles to Volkswagen, or wait for a government approved vehicle repair that would allow such vehicles to remain in operation on U.S. roads. The impacted models include Beetles, Golfs, Jettas, Passats and Audi A3’s dating back to model year 2009. Vehicle owners will further benefit from additional cash payments that can range as much as $10,000 per owner. Owners have until September 2018 to make a final decision as to whether to turn-in their vehicles or have them repaired to meet emissions specifications. There are current indications from media and industry sources that most current owners may elect the vehicle return option, which as this blog noted previously, sets-up an interesting reverse supply chain challenge in terms of salvage or recycling of such vehicles for non-affected components.

As indicated in our blog posting earlier this month, over 600 U.S. dealers themselves are expected to be compensated upwards of $1.2 billion for the financial hardships of lost sales, damaged reputations and declines in dealership value that has been precipitated by the emissions scandal.

The court settlement further requires the automaker to contribute $2.7 billion over three years to an environmental trust to remediate the pollution caused by the diesel-powered vehicles. According to judge that approved the settlement, the beneficiaries of this environmental trust can include projects that reduce nitrogen-oxide emissions in freight related trucks, buses, ferries or airport ground transportation equipment. That would indicate a bonus for environmental initiatives related to transportation and logistics.

Also included in the settlement is the automaker’s investing upwards of $2 billion over the next decade into the design of zero-emission vehicles. Industry media believes that VW will now concentrate more on electric and hybrid powered vehicles and this may well be the death knell for VW diesel powered vehicles for the U.S. and perhaps other countries as well.

Owners of the larger 3.0-liter vehicles that were impacted by the emissions alternation are still waiting terms of a financial settlement along with an expected repair procedure. That will likely add further financial impacts to Volkswagen, as will be further settlements involving other countries.

As noted in our prior blog commentaries related to this ongoing VW emissions incident, the global automaker will continue to experience painful lessons, both organizational, design and financial related.  The one positive, if there is one, is that management remains committed to addressing the mess created in an expedient manner.

A company noted for a somewhat tops-down management style, an engineering-driven culture and among one of the two top global producers will learn some tough lessons because of this scandal. Further, the industry will adsorb some key learning regarding balancing the pressures to introduce market-leading innovative products on a timely basis with organizational tendencies to cover-up potential hardware or software design flaws.

Bob Ferrari

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