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Volkswagen settlement in US puts UK fleet operators on the back foot

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By Eddie Flanagan, asset finance partner at Shakespeare Martineau

A legal settlement approved for Volkswagen (VW) car owners in the US has not provided any assistance to fleet operators and leasing companies in the UK Whilst  it is clear how the manufacturer will attend to US consumers and vehicle providers, the position here in the UK is far more uncertain with limited redress being offered.

Many vehicle providers and fleet managers here in the UK are likely to face similar demands from consumers once the compensation packages become more widely known. They will need to manage customers’ expectations carefully in the months to come.

In a £14.7 billion (£12 million) settlement approved on Tuesday 25th October, the German car maker has allocated up to $10 billion to meet the cost of buybacks and compensation settlements in the US, in the aftermath of the diesel emissions scandal. $4.7 million will be spent on programmes to offset excess emissions and to develop clean car projects.

This judgement highlights the contrasting approaches taken by US and UK regulators. In the US, regulators have shown that they won’t hesitate to take a foreign corporate to task if it impinges on the rights of US consumers. Equally, the level of damages approved can be viewed as a punitive response to VW in light of its treatment of US consumers.

The position in the UK and indeed throughout the EU could not be more different from that in the US and the redress offered to consumers is far more limited. Comments made on consumer blogs and social media channels reveal just how unhappy many consumers are about the situation; some alleging that the EU is in some way ambivalent or inept in its handling of the situation.

VW has made it very clear that it does not intend to compensate EU customers; alleging that it has not broken any EU laws and the issue does not affect the performance or economy of its vehicles. Rather tellingly, VW’s CEO, Matthias Muller, is alleged to have told German newspapers that offering similar compensation in Europe and elsewhere would be inappropriate and unaffordable, stating that a similar package in places outside of the US would overwhelm VW.

For fleet operators and leasing companies, the main concern will be that they could find themselves in the firing line; handling considerable negative customer feedback, without being able to offer any practical advice or assistance in return other than the manufacturer’s recall. This could generate tension in their trading relationships with VW. In addition, leasing companies will have the added problem of having to monitor any adverse effect on residual values at the end of their contracts.

For UK consumers, the current position is that repair by recall is the only real remedy. For some 1.6 models, the recall may not get underway until 2017. The UK Transport Select Committee continues to urge the UK Government and the EU to take action but, as we have seen with other issues, it can take time for Europe to adopt a unified approach when enforcing consumer rights.

For the time being, fleet managers and leasing companies must be mindful that consumer redress may yet be secured, but it is unlikely to be of the financial magnitude reached in the US. In the interim, care will need to be taken when addressing consumer complaints and this will require back to back engagement with the manufacturer. We are yet to see if any actions of a class nature will be launched.

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