Volkswagen Dealerships Upbeat Over Payout from Emissions Scandal
27 August 2016 - 7:00AM
Dow Jones News
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.
"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.
(END) Dow Jones Newswires
August 26, 2016 16:45 ET (20:45 GMT)
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