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Volkswagen Dieselgate Update: Here's What You Should Know

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Volkswagen’s (VWAGY - Free Report) Diesel-Emissions Scandal, which first broke in 2015, continues to haunt the German auto giant. Dealing a fresh blow to the automaker, Germany’s highest civil court recently ruled that Volkswagen must pay compensation to the buyer of one of its diesel minivans fitted with emissions-cheating software. The ruling marks the first real legal setback for the auto biggie in its home country.

More on the Recent Verdict

The Federal Court Justice in Karlsruhe upheld the lower court’s ruling that the defendant, Herbert Gilbert can return his vehicle with rigged diesel engines to Volkswagen. The person is entitled to receive partial reimbursement, after taking into account the depreciation effect. Per Reuters, the court has ordered Volkswagen to pay 25,600 euros, which is almost 6000 euros below the original purchase price.

The ruling sets a precedent for 60,000 lawsuits that are still pending. With the company losing the landmark Dieselgate case, the court has allowed the claimants to return their vehicles for partial reimbursement of the purchase price. Notably, the car's mileage will be taken into account when calculating reimbursement.Volkswagen will offer a one-off payment to those affected as the firm is seeking quick and effective closure of the cases in agreement with the plaintiffs.

Volkswagen Continues to Reel Under Emissions Scandal

It seems that the German auto giant just cannot seem to shake off the Diesel-Emissions Scandal, which has already cost Volkswagen more than 30 billion euros in regulatory fines, compensation and vehicle refits worldwide since 2015.

In September 2015, the company disclosed to the U.S. Environmental Protection Agency that it had used illegal software in 11 million vehicles worldwide to manipulate the results of diesel emission tests. Volkswagen has been facing a flurry of legal actions worldwide ever since then.

The company had paid around $25 billionin fines and compensation to drivers, dealers, and authorities in the United States alone. The desire to dominate the U.S. market with diesel-powered vehicles resulted in financial and reputational loss.

Last fall, the firm had paid approximately $83 million as a settlement for multiple class-action lawsuits that it had faced from Australian customers. In January 2020, a Canadian court imposed a fine of C$196.5 million, which was in addition to C$2.4 billion that Volkswagen had already paid in the country.

In the United Kingdom, Volkswagen faced 91,000 consumer claims under a group litigation order as the company installed a “cheat device” in cars under its namesake brand along with Audi, Seat, and Skoda brands. The automaker's current and former senior employees are facing criminal charges in Germany over Dieselgate deceit.Recently, Volkswagen agreed to pay 9 million euros to close the proceedings against its chairman and CEO who were accused of holding material information before the emissions scandal erupted.

A couple of months back, the carmaker agreed to pay up to $830 million euros to avoid a class- action lawsuit involving 235,000 German car owners.

What Lies Ahead?

The latest ruling increases the chances of car owners winning their individual suits, which could result in reimbursement from the carmaker. The Dieselgate scandal has weighed on the firm significantly, wiping billions of euros from its market value. The carmaker and the wider auto industry are awaiting the upcoming ruling from the European Court of Justice, which will assess if the new diesel engines, used by Volkswagen and other brands, are also rigged.

Meanwhile, Volkswagen is making every effort to redeem itself after the Dieselgate aftermath.  Under the leadership of Herbert Diess, the company is actively accelerating electrification efforts. Importantly, Volkswagen plans to become the world market leader in e-mobility in the next few years. The company will invest €33 billion until 2024 for the same. Of this amount, the Volkswagen brand will spend €11 billion. Apart from e-mobility, the company looks forward to develop new mobility solutions, and make improvements in smart cities and autonomous driving this year. It also plans to achieve 1.5 million EV sales with 30 different EV models by 2025.

Zacks Rank & Key Picks

Volkswagen currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the same industry include Adient PLC (ADNT - Free Report) , Unique Fabricating Inc. (UFAB - Free Report) and Veoneer Inc. (VNE - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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