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Volkswagen (VLKAY) Offers $1.2B in Settlement to US Dealers

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Volkswagen AG (VLKAY - Free Report) has agreed to compensate its dealers in the U.S. for the losses incurred by them in relation to the company’s emissions scandal. Per a settlement agreement filed in San Francisco’s federal court, the company is willing to pay up to $1.2 billion as compensation. The proposed settlement has to be approved by a judge before coming into effect.

Under the terms of the agreement, dealers may also choose to opt out of the settlement and sue Volkswagen individually. Previously, the company proposed a settlement plan for vehicle owners. It agreed to spend up to $10 billion to buy back or repair 475,000 vehicles, and also pay $5,000−$10,000 to each car owner. Car owners were also given the choice to opt out of this agreement and sue the company individually.

Last Friday, the lead attorney for the car owners suing Volkswagen stated that over 311,000 individuals had agreed to the deal, while less than 3,300 opted out. The settlement plan also includes $2.7 billion for an unspecified environmental mitigation and $2 billion for the promotion of zero-emissions vehicles.The deal was granted preliminary approval by a judge in July, but the final decision is expected to be delivered on Oct 18. However, the deal does not cover roughly 85,000 more powerful Volkswagens and Audis with 3-liter engines also included in the scandal.

Volkswagen has been facing significant trouble since the Environmental Protection Agency (“EPA”) revealed that the company had developed a software algorithm to deceive U.S. emission tests. The automaker admitted that its diesel vehicles are installed with software that makes the engines appear to have low emission levels during tests. According to the EPA, these vehicles emit nitrogen oxides, or NOx, at almost 40 times the standard amount. Nitrogen oxide emissions lead to smog and acid rain, and can cause serious health concerns like lung cancer.

Shares of Volkswagen closed 3.1% higher at $28.91 on Sep 30.

Zacks Rank

Volkswagen currently carries a Zacks Rank #3 (Hold). 

Some better-ranked auto stocks include Tata Motors Limited (TTM - Free Report) , Spartan Motors Inc. (SPAR - Free Report) and The Goodyear Tire & Rubber Company (GT - Free Report) .

Tata Motors has a long-term growth rate of 3.6% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Goodyear has seen its estimates move north in the last 30 days. The stock sports a Zacks Rank #1.

Spartan Motors, also a Zacks Rank #1 stock, has a long-term growth rate of 15%.

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