Volkswagen Dealerships Upbeat Over Payout from Emissions Scandal

FeaturesDow Jones Newswires

Volkswagen dealers nationwide are largely striking a hopeful tone on news of the auto maker's deal with some 650 Volkswagen franchise dealerships in the U.S. over its emissions scandal.

Volkswagen expects to pay a collective $1.2 billion to the dealers, according to a person familiar with the matter, and in addition has said it would buy back used, unfixable diesel vehicles on dealer's lots.

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"This is an enormous first step for VW to begin to repair the trust of their dealers," said Steve Kalafer, a dealer in New Jersey.

Auto makers have traditionally taken big steps to maintain strong relationships with dealers, who are the actual customers of the vehicles that factories pump out. Vehicles aren't typically produced without a dealer or fleet buyer having ordered them, and a retailers willingness to keep taking cars is an important factor in helping an auto maker meet quarterly revenue and profit goals.

Dealers have said profits have taken a hit since the company conceded nearly a year ago that it installed devices in some 11 million diesel-powered vehicles world-wide that enabled the cars to cheat emissions tests. Some 12,000 diesel-powered vehicles have since languished on dealer lots, unable to be sold, while the businesses waited to see what the company planned to offer them.

Matthew Welch, the general manager of a dealership outside Seattle, said that the dealership has struggled to keep his employees on the payroll and has weighed whether to cut back or boost advertising.

But he said his dealership's payout from the deal will help it "get healthy" again.

Some dealers said the deal, unveiled in San Francisco federal court earlier this week, was the result of mostly non-adversarial negotiations with the company.

"We are business partners," said Michael DiFeo, who runs a dealership in Roselle, New Jersey and is on Volkswagen's national dealer council. "They've done a good job making sure we're surviving."

Volkswagen North American CEO Hinrich Woebcken also called dealers the company's partners and said the deal, when completed, "will strengthen the foundation for our future together" and emphasize the company's commitment to the U.S.

While many dealers welcomed the settlement news, some hesitated to cheer too much until they see the specifics. Complete details are expected by the end of September, and money from the settlement would be paid out within 18 months.

For instance, Mr. Kalafer worries that "if there is too much 'fine print'�meaning form over substance�then any trust factor goes in reverse, and it will take a generation to repair again." Mr. Kalafer said dealers haven't only been hit by falling sales of diesel cars, but have lost revenue on diesel service because customers aren't bringing in cars for repairs and on the sale of wholesale parts.

The exact amount of payouts will vary based on the size of dealerships and the market it serves, among other factors.

"They have cars on their lots they can't sell," Steve Berman, an attorney for dealers, told the court Thursday. "Their franchise value has gone down. And they have invested millions in these Volkswagen franchises."

Mr. Berman in April filed a lawsuit on behalf of a handful of dealers alleging they built new showrooms, purchased new facilities and heavily stocked diesel vehicles based on Volkswagen's false marketing.

That back stock of vehicles has been the biggest single problem for Jack Fitzgerald, an owner of a group of dealerships in Maryland, two of which sell Volkswagens, who says the diesel crisis has undoubtedly hurt his profits.

Mr. Fitzgerald said he looks forward to a provision in the dealer agreement regarding the diesels he isn't allowed to sell. He says he stands to lose between $7,000 and $10,000 on each one.

"When you start losing money on cars, it doesn't take long to wipe you out," he said.

William Boston contributed to this article.