Volkswagen agreed Thursday to fix or buy back nearly 500,000 diesel cars in the United States that are equipped with illegal emissions software.
But the measures announced Thursday fell short of a broader settlement that will eventually also include fines and additional compensation for owners stemming from the carmaker's admission that it rigged diesel vehicles to cheat on pollution tests.
Judge Charles R. Breyer of U.S. District Court in San Francisco said that Volkswagen had reached an agreement in principle with the federal government as well as lawyers for vehicle owners. But details of the settlement remain to be negotiated, including the size of fines.
Volkswagen faces a theoretical maximum U.S. government fine of $18 billion, but legal experts expect it to be much lower.
Kelley Blue Book, a research firm, estimated the cost of buying back all U.S. cars at $7 billion.
Breyer said that owners will receive additional "substantial compensation" and that the agreement "will fully address any excess emissions and environmental consequences." He gave lawyers in the case until June 21 to complete details of the settlement, and said that members of the public would then have a chance to comment.
The company will also offset some of the environmental damage caused by the cars by investing in clean technologies.
Owners of 480,000 Volkswagens and Audi A3 models with 2-liter engines will have the option either to get their cars fixed so they are compliant with clean air laws, or sell them back to the company. But a solution for about 100,000 cars with 3-liter diesel engines, including Audi and Porsche models, has not yet been agreed to, the judge indicated.
A much higher number of European cars, more than 10 million, are also affected by the Volkswagen cheating. But the company's financial fines and any consumer liabilities in Europe are not expected to be nearly as high because of differences in air-quality regulations and consumer-protection laws.
Because of the uncertainties over the potential costs of the U.S. settlement, Volkswagen has delayed earnings reports for the past two quarters. That has impaired the company's ability to raise money on debt markets because it could not provide financial information demanded by investors.
The company's troubles are far from over. It faces official investigations and possible criminal proceedings in other countries including Britain, France, Germany and South Korea. And owners of its models in Europe, who account for a vast majority of 11 million diesel cars with the cheating software, are angry that they are not receiving any compensation.
Volkswagen is recalling the cars in Europe to reprogram the engine software, and in some cases to install a plastic part that is supposed to help lower emissions. But it has balked at offering European owners money.
Before the settlement was announced, analysts at the investment bank UBS had estimated the total cost of the scandal at 38 billion euros (about $43.1 billion) of which 14 billion euros was for expenses outside the United States. But the actual costs are still to be worked out.
Breyer had given Volkswagen until Thursday to reach a settlement with the federal government and with U.S. vehicle owners. The judge had expressed dissatisfaction that the cars were still on the road emitting illegal levels of pollution seven months after the cheating became public.
The defeat device allowed Volkswagen to cheat on U.S. emissions tests by recognizing when cars were being monitored and changing the exhaust settings. In testing, the cars dialed up pollution controls.
But on the road, pollution controls were dialed back to enhance performance and fuel mileage, and to protect emissions equipment from wear. When that happened, the cars spewed as much as 40 times the allowed amounts of nitrogen oxides, a pollutant that poses health hazards.
Breyer is overseeing all of the U.S. litigation, including claims filed by federal and state governments as well as Volkswagen owners. The company still faces separate suits by Volkswagen dealers and by dealers of competing brands, who say the cheating gave Volkswagen an unfair advantage in the market.
Volkswagen's legal troubles were focused in the United States because limits on nitrogen oxides are more stringent and the penalties more severe than in Europe. In addition, U.S. law gives owners significant scope to seek redress in court.
The U.S. models with the cheating software include Volkswagen, Audi and Porsche cars with 2-liter or 3-liter diesel engines from the model years 2008 to 2015.