Volkswagen, EPA Reach 'Concrete Plan' in Vehicle Software Cheat Scandal

A worker attaches rubber tubing to the exhaust of a car to enable emissions testing to take place on the vehicle, at Emissions Analytics in West London. Hannah McKay/Reuters

A judge in California announced Thursday that Volkswagen has come forward with a "concrete plan" supported by the U.S. Environmental Protection Agency and other government agencies to resolve claims made in connection with German automaker's rigging of vehicles with hidden cheat software that allowed it to game emissions standards in the U.S., affecting an estimated 600,000 cars.

The "agreement in principle" would apply only to U.S. Volkswagen vehicles. In late 2015, Volkswagen admitted to installing the software in more than 11 million cars globally.

In a brief proceeding at the U.S. District Court in San Francisco, Judge Charles Breyer stated that the proposed deal would give owners of 2-liter diesel vehicles that were fitted with the software the option of having their cars fixed to meet U.S. pollutions standards, have them bought back or could cancel their vehicle lease in cases of those who are leasing their cars.

The judge said the agreement included "substantial compensation" for the owners of 2-liter diesels, with a deal on 3-liters pending, and would establish a fund for the appropriate remediation efforts for any environmental damage Volkswagen may have caused by having cars on the road emitting pollution in excess of the EPA's standards.

Details regarding the extent of the owner compensation were not disclosed. The judge emphasized that while negotiations about the particulars are still underway, all discussions were to be kept confidential—effectively issuing a gag order to halt the phalanx of media leaks that have dogged the proceedings.

The proposed agreement was approved, according to the judge, by California regulators, the California attorney general's office and supported by the U.S. Department of Justice. The Federal Trade Commission also is expected to support the deal, according to lawyers during Thursday's proceedings. The FTC is suing Volkswagen over what it calls deceptive practices in its "clean diesel" advertising.

The agreement, which is subject to further approvals and comment from U.S. consumers—hopefully, the judge said, by July—appears to have allowed Volkswagen to ward off a trial, which Breyer had threatened to approve if an agreement had not been reached Thursday.

Thursday's agreement included a commitment from Volkswagen to make further efforts to promote green vehicle technology, he said.

While the proposed agreement is a step forward, the Justice Department is continuing with a criminal investigation into Volkswagen's cheat scandal, and the automaker is also facing multiple investigations around the world.

In addition, the agreement doesn't cover around 90,000 3-liter Volkswagen vehicles, which include the Porsche and Audi brands.

Volkswagen may need to increase the estimated costs of the scandal from roughly 6.7 million euros to twice that amount or more, as the cost to buy back all the affected cars alone would be more than $7 billion, according to Kelley Blue Book.

The judge thanked representatives of Volkswagen, the Department of Justice, Porsche and others for working "14-hours days" and "putting forth extraordinary efforts" to hammer out the deal, "without which this could not have happened."

He also warned that the next set of deadlines he would set would be "aggressive."

The judge announced a June 21 deadline for all parties to file their preliminary proposals for a settlement, stressing that he wanted time for public comment before he approved a final deal.

One of the lawyers said that he hoped to "get some time off this summer," after a grueling spring.

Breyer quipped: "That depends on how you define summer."

The judge set the next meeting for May 19, "just to make sure we're on track, or on the road."