Volkswagen (VW) has said it will repair or buy back polluting US diesel vehicles and pay owners up to £7,500 under a £11bn deal to settle lawsuits stemming from its emissions cheating scandal, a source close to the talks has said.
The figure will be the largest car industry scandal settlement in US history and a huge step in VW’s efforts to address the legal fallout from its admission that its vehicles were designed to fool emissions tests.
The $14.7bn (£11bn) deal sets aside $10bn to repair or buy back around 475,000 polluting VWs with two-litre diesel engines and to compensate each owner with an additional payment of between $5,100-$10,000.
The deal will not be filed in court until Tuesday and a judge has ordered lawyers not to talk about it before then.
How VW would repair the vehicles to bring them into compliance with clean air laws has not yet been finalised, the source said.
Owners who choose to have the German car maker buy back their vehicles would get the clean trade-in value from before the scandal became public on September 18 2015.
The average value of a VW diesel has dropped 19 per cent since just before the scandal began. In August last year, the average was $13,196 (£10,000) and this May it was $10,674 (£8,000), according to Kelley Blue Book.
VW will also offer to fix the cars free, but any repair that improves the pollution controls is likely to hurt acceleration and fuel economy which is contradictory to its marketing claims that the cars are both more fuel efficient and better performing that those with regular petrol engines.
The settlement still requires a judge's approval before it can go into effect. Owners can choose to decline Volkswagen's offer and sue the company on their own.
The deal also includes $2.7bn for environmental mitigation and another two billion for research on zero-emissions technology, the source said.
The scandal erupted in September 2015 when it emerged that VW had fitted many of its cars with software to fool emissions tests and had put dirty vehicles on the road.
Investigators determined that the cars emitted more than 40 times the legal limit of nitrogen oxide, which can cause respiratory problems.
VW is still facing billions more in fines and penalties, a lawsuit by state attorneys general and potential criminal charges.
The settlement also does not include another 90,000 three-litre Volkswagen diesels, which had another version of cheating software.
The company, which knew the EPA's testing routine, got away with the scam for seven years before being caught by the International Council on Clean Transportation, which hired West Virginia University to test a VW in real roads conditions.
VW has now said it will invest billions of euros in electric cars, ride-hailing and automated driving to become a world leader in green transport by 2025. But some analysts have said these efforts are merely an attempt to catch up with its rivals that have already developed more advanced technology in these areas.