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German class-action suit seeks full refund for 383,000 VW dieselgate car owners

German consumer watchdog VZBV has signed up 383,000 owners of Volkswagen AG cars affected by the "dieselgate" scandal to a class-action lawsuit it will bring against the automaker that seeks compensation up to the full original purchase price of the vehicles.

The number of participants in the suit was accurate as of Jan. 4, a spokesperson for the Federal Office of Justice, which is responsible for maintaining the case register, told S&P Global Market Intelligence. More VW owners could yet join before the case is heard.

Volkswagen has so far paid out €28.2 billion in fines and compensation, mostly in the U.S., over the use of illegal defeat devices that made it possible to give more flattering exhaust emissions readings when it detected a test-taking place. But complaints in Germany have moved more slowly, with one-third of the roughly 30,000 cases brought on an individual basis by owners having been resolved so far.

The class-action suit paves the way for hundreds of thousands of near-identical complaints to be resolved through a single deliberation process. It could simplify the pursuit of compensation for affected car owners and draw a line under the damaging debacle more quickly for the carmaker, regardless of the verdict.

State-funded consumer watchdog VZBV launched its case as soon as class actions were given legal recognition in Germany in November 2018, a law change prompted by the large number of consumers intent upon seeking compensation from Volkswagen over lower residual values resulting from the cars' tainted image and recall modifications.

"Consumers have been betrayed by Volkswagen so they should have the right to give the car back and get back the money they paid," VZBV Policy Officer Sebastian Reiling said in an interview.

"We definitely want a declaration that says they have to pay the full sum back," said Reiling, who estimates that the case would take upward of two years to conclude. Participants in the suit would still have to claim compensation separately if the case establishes an entitlement to damages, but the process would be expedited by a verdict applicable to all.

The VZBV's claim is based on German legal provisions that each party must return what they have received from the other in cases where a purchase contract has become void, Reiling said, adding that this would apply in the Volkswagen case because it missold the cars as compliant with emissions standards. The EA189 engines at the heart of the scandal were also fitted to SEAT, Audi and Skoda cars, Volkswagen Group's other mainstream brands.

The suit shows that Volkswagen still has some way to go before it can put the dieselgate affair behind it, even as it pushes aggressively into battery electric cars. Volkswagen Group Head of Compliance Hiltrud Werner said in the Financial Times in December that 2019 would be "the toughest year ever," with diesel-related suits ongoing in 50 countries.

Volkswagen spokesman Christopher Hauss said in an interview that the company believes the emissions-masking defeat devices are not illegal in the EU, even though they are in the U.S. and that customers have not suffered financial losses or perceptible faster depreciation on their cars after the devices were disabled during a 2016 recall.

"Our position hasn't changed that there is no legal basis for any kind of claims and that doesn't change with this new instrument. Whether you go to court with your lawyer or as part of a class action, legally, there is no difference," Hauss said. "We didn't see any change in the value of the cars after we updated the software."

Most of the individual cases already adjudicated found in favor of Volkswagen, Hauss said, while VZBV's Reiling argued that the company had tended to settle diesel-related cases out of court when it ran out of appeal options.

In November 2018, a district court ruling in a separate individual suit against Volkswagen in Augsburg, Germany, ordered the automaker to take back the car and refund the owner in full, according to various media reports. Reiling said the VZBV would pursue the same compensation as well as 4% interest on top of the price paid for each year since the purchase. Local consumer law would typically call for deductions from that sum reflecting the use customers had from the cars, Reiling said.

The VZBV will also push for owners wanting to keep their cars to receive compensation equivalent to the extra depreciation it says their vehicles have accrued. That would likely prove much less burdensome financially for the carmaker, though Reiling could not immediately provide an estimate of what this might amount to.

Volkswagen says there are about 2.2 million cars fitted with the affected EA189 engines on German roads, but only individuals and not companies running fleets of the affected cars can join the case.