US authorities approve settlement

September 14, 2020 - Daimler AG and its subsidiary Mercedes-Benz USA LLC (MBUSA) have taken another important step toward resolution of various diesel proceedings: The U.S. regulatory authorities have approved a settlement of civil and environmental claims, thereby comprehensively resolving the respective regulatory proceedings regarding emission control systems of approx. 250,000 diesel vehicles in the United States. Today, the U.S. authorities have lodged the Consent Decrees with the U.S. District Court for the District of Columbia, which has to ultimately approve the settlement.

The involved U.S. authorities are the Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environment and Natural Resources Division of the U.S. Department of Justice (DOJ), the California Attorney General’s Office, and U.S. Customs and Border Protection.

On August 13, 2020, Daimler first disclosed the company’s agreement in principle with the authorities.

The company has fully cooperated with the U.S. authorities. Daimler has not received a Notice of Violation (NOV) from the EPA or the CARB during this process.

As previously disclosed, the company has also agreed with plaintiffs‘ counsel to settle the consumer class action „In re Mercedes-Benz Emissions Litigation,“ which is pending before the U.S. District Court for the District of New Jersey. That settlement is being submitted today for court approval as well.

By concluding the proceedings, Daimler avoids lengthy court actions with respective legal and financial risks.

As stated in the consent decrees and the class action settlement, the company denies the authorities’ allegations as well as the class action plaintiffs’ claims and does not admit any liability to the United States, California, plaintiffs, or otherwise. The settlement resolves the company’s pending civil proceedings with the U.S. authorities without reaching any determinations as to whether functionalities in Daimler’s vehicles are defeat devices.

Settlement with U.S. authorities

As part of the settlement and in addition to the payment of civil penalties in the amount of USD 875 million (approx. EUR 738,5 million), the company will further enhance its technical Compliance Management System and conduct an Emission Modification Program for certain diesel vehicles. The company will also conduct mitigation measures nationwide, and furthermore provide funding for additional NOx emissions mitigation initiatives in the State of California.

Compliance

Unlike with other OEMs’ diesel settlements, the consent decrees do not require an external compliance monitor.

Since 2016, Daimler has built on its longstanding compliance program with an innovative group-wide technical Compliance Management System (tCMS), thereby massively strengthening its technical compliance measures and controls. For this purpose, significant resources have been invested and relevant new jobs have been created. tCMS’s elements are spelled out in Daimler’s Compliance Operating Plan, included as an appendix to the US/CA Consent Decree, which serves as the first-ever tCMS blueprint to be so published for the automobile industry.

As part of the settlement, Daimler has committed to continue its work to further enhance its tCMS.

With the tCMS, Daimler’s compliance systems can stay current with the ever-increasing legal complexity and ever-changing risk environment in the regulatory world. In addition to delineating responsibility and processes for prompt decision-making in connection with technical questions of engineering judgment and regulatory interpretation, the tCMS includes regular trainings for employees and special programs, comprehensive dialog events, and guidelines to support Daimler’s specialists in the development departments. In fact, Daimler has already conducted in-person training for over 25,000 company engineers on technical and regulatory compliance issues.

Emission Modification Program

As part of the settlement with the U.S. authorities, Daimler will offer an emission modification program to owners and lessees of eligible model year (MY) 2009 through 2016 Mercedes-Benz BlueTEC II diesel passenger cars and MY 2010 through 2016 Mercedes-Benz and Freightliner BlueTEC II diesel Sprinter vans registered in the United States.

The emission modifications for the various vehicle models will be rolled out in different phases. Customers will be informed about the measure by mail as soon as the emission modification can be undertaken for their vehicle. With the start of the Emission Modification Program (estimated late 2020), the company will also publish a website from which customers can gather information.

US customers can call the MBUSA Customer Assistance Center at 1-800-FOR-MERC for any questions related to passenger cars and at 1-877-762-8267 for questions related to Mercedes-Benz or Freightliner Sprinter.

Through the Emission Modification Program in the United States, Daimler will update the vehicles’ control units with a software update; and will replace certain components of the emission control system, like sensors and catalysts.

The vehicles subject to the U.S. settlement were not sold in the same configurations in Europe and the emission control system of the U.S. vehicles is different from the models sold in Europe due to the differing certification and legal frameworks.

NOx Mitigation Measures

As part of the settlement, the company will fund the engine repowering of 15 line-haul locomotives in the United States in order to reduce NOx emissions. The project shall be completed within 40 months. In addition, Daimler will pay to CARB USD 110 million (approx. EUR 93 million) for the implementation of additional measures to reduce NOx emissions in the State of California.

Consumer Class Action Settlement

Daimler has also reached a settlement in the consumer class action “In re Mercedes-Benz Emissions Litigation” in order to thereby fully resolve the proceeding by mutual agreement.

Daimler has agreed to settle this litigation to avoid further costs of litigation, and return focus to its core business. Daimler denies the material factual allegations and legal claims asserted by the plaintiffs and settlement class members.

The settlement applies to MY 09-16 Mercedes-Benz diesel passenger cars and diesel-powered MY 10-16 Mercedes-Benz and Freightliner Sprinters with BlueTEC II emission control systems sold or leased in the United States.

Current owners and lessees who have an Approved Emission Modification installed at an authorized repair facility and meet certain other requirements will be eligible to claim a payment of up to USD 3,290.

Former owners and lessees of the vehicles who meet certain requirements are eligible to claim a share of USD 822.50, which in case of a claim will be deducted from the amount available to the current owners and lessees of those vehicles. If more than one former owner or lessee makes a claim on the same vehicle, the amount will be equally divided among the former owners and lessees.

Class members will find detailed information about the settlement, including eligibility and benefits, on the class settlement website. Class members will also be notified with further details by mail after the settlement receives preliminary approval from the court, and can use the claim form in their mailer or on the website to file claims for benefits.

Daimler will also pay class counsel’s attorneys’ fees and costs in an amount to be determined by the court. Daimler has agreed not to oppose class counsel’s request for attorneys’ fees and costs up to USD 83.4 million (approx. EUR 70.4 million).

Overview Settlement Related Costs

As disclosed on August 13, 2020, the company has made sufficient provisions for the expected total costs of the settlements.

For the settlements with the U.S. authorities, Daimler expects costs of approx. USD 1.5 billion (approx. EUR 1.27 billion) including civil penalties as well as expected costs for mitigation and the implementation of the Emission Modification Program. The estimated cost of the class action settlement is approx. USD 700 million (approx. EUR 591 million) including the court’s anticipated award of attorneys’ fees and costs. In addition, Daimler estimates further expenses of a mid-three-digit-million EUR amount to fulfill requirements of the settlements.

Daimler expects a corresponding impact on the Free Cash Flow of the industrial business over the next 3 years with the main impact within the next 12 months.

Exchange rate USD to EUR as of September 11, 2020, 1 USD = 0,844 EUR.

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