(Bloomberg) – Daimler AG will pay about $ 2.2 billion to fix US diesel emissions problems in the last fallout of years of closer regulatory control over car pollution.
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Mercedes-Benz AG trident logo decal badges sit on a tray on the assembly line at the premium automaker’s factory, operated by Daimler AG, in Rastatt, Germany, on Monday, February 4, 2019. Daimler announces full yearly earnings on February 6th. .
An agreement in principle with authorities including the US Department of Justice and Environmental Protection Agency will cost the German automaker about 1.27 billion euros ($ 1.5 billion), according to a statement. The company in Stuttgart will pay another 592 million euros to bring legal action over classes brought by consumers.
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“While this will hopefully resolve this issue and allow the company to focus on other pressing challenges, it is a reminder that other stakeholders are likely to receive the majority of Daimler’s cash flow in the period 2020-23, despite underlying performance,” Citigroup Inc . said analyst Angus Tweedie in a note.
Daimler shares fell 1.2% to 41.91 euros at 9:55 a.m. in Frankfurt, according to the Stoxx 600 Autos & Parts index. The shares are down 15% for the year.
The pacts solve problems that arose when US regulators stepped up their investigation into diesel emissions following the 2015 Volkswagen AG cheat scandal. The Justice Department asked Daimler to investigate his follow-up trial next year.
Although the costs add to Daimler’s financial headwinds, triggered by the Covid-19 pandemic, the amounts are relatively small compared to the greater damage from emissions that have cost VW more than 30 billion euros. Daimler says it fully cooperated with U.S. authorities, while VW officials lied to EPA and California regulators before admitting that the company made devices to beat emissions tests.
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An employee polishes a badge on a Mercedes-Benz vehicle.
Daimler’s expenses are also less cars. The agreement with US authorities covers civil and environmental claims related to the emission control systems of about 250,000 cars and vans. VW admitted in 2015 that it rigged 11 million diesel engines worldwide, including about 600,000 in the US
Release issues
The auto industry is still not far out of the woods with U.S. regulators.
Fiat Chrysler Automobiles NV recently revealed that it has begun talks with the criminal division of the Justice Department to resolve an investigation into issues related to diesel emissions. Ford Motor Co. also revealed last year that the emission certification process may be flawed and that the Justice Department had opened a criminal investigation.
Electric car manufacturer Tesla Inc. has meanwhile posted a string of successive quarterly gains, thanks in part to the sale of regulatory credit to manufacturers who otherwise would not be able to meet smarter pollution standards. The market capitalization of the Model 3 is over $ 300 billion, almost double the value of VW, Daimler and Ford.
Years of impact
Daimler expects to make hundreds of millions of euros in additional expenses related to meeting the requirements of its settlements and said the costs will affect its business for the next three years.
The company warned in its annual report published in February that German watchdog of the motor industry KBA is likely to rule out that additional cars are equipped with defeat devices. Daimler incurred legal and regulatory costs as a result.
In its statement, Daimler said it had made adequate provisions for the cost of U.S. settlements. In the coming weeks, authorities will submit permission decisions to a U.S. district court for final approval.
A spokeswoman for the California Air Resources Board, one of the authorities involved in the settlements, said the approval decision is expected to be submitted by mid-September. Representatives of the Justice Department and EPA declined to comment.
(Updates with share performance and analyst comments from third paragraph)
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