Instant Analysis: Volkswagen to Establish Claims Fund for Diesel Owners

What happened?

Volkswagen's U.S. arm announced on Thursday that it has retained attorney Kenneth R. Feinberg to "design and administer a claims program" for owners of diesel-powered VW products equipped with software designed to cheat emissions tests .

Feinberg is the attorney who recently administered a claims fund established by General Motors for victims of accidents related to its defective ignition switches . He had previously won praise for his work on compensation funds set up for victims of the Sept. 11, 2001 attacks and the Boston Marathon bombing, among others.

Does it matter?

It matters this way: It's a clue as to how VW plans to handle its cheating cars in the United States. But we need to know more before we know how it'll impact VW's finances.

Here's the background: About 11 million vehicles worldwide are said to contain the software, which produces passing results on emissions tests but allows the cars to emit much dirtier exhaust in regular driving. In particular, the diesel-powered vehicles in question emit far more oxides of nitrogen than allowed by law. Oxides of nitrogen cause smog that is implicated in many respiratory illnesses.

Volkswagen is already moving ahead with plans to recall and repair the affected vehicles in Europe. That's a fairly simple matter as European air-pollution regulations are less strict than those in the United States.

But the roughly 482,000 affected vehicles in the U.S. will likely need much more drastic changes to meet the tougher standards in place here. For investors, that has been a big open question: Would VW need to buy back the affected vehicles, at a potential cost of as much as $9 billion?

VW has submitted a plan to U.S. regulators giving them until Dec. 21 to comment. We will know much more then. But this move to hire Feinberg to "design and administer an independent claims resolution program to address claims related to the 2.0L and 3.0L TDI vehicles affected by the emissions compliance issue," as VW said in a statement, suggests one of two things: Either VW expects car owners to be very upset by its proposed remedy -- or Feinberg is going to administer the process of buying back some or all of the vehicles.

Either way, it's likely to be rough ride for VW in the U.S., and quite possibly an expensive one. Stay tuned.

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The article Instant Analysis: Volkswagen to Establish Claims Fund for Diesel Owners originally appeared on

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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