German automaker Volkswagen AG will pay as much as US$15.3 billion (NZ$21.7 billion) after admitting it cheated on US diesel emissions tests for years, agreeing to buy back vehicles from consumers and provide funding that could benefit makers of cleaner technologies.
A deal formally filed by the Justice Department on Tuesday will provide the largest-ever automotive buyback offer in the United States.
The proposed consent decree confirmed that VW will set aside US$10 billion to cover buybacks or potential fixes for diesel cars and sport utility vehicles that used illegal software to defeat government emissions tests.
VW still may face criminal charges and oversight by an independent monitor, similar to settlements of cases involving General Motors Co and Toyota Motor Corp for auto safety issues, a person briefed on the matter said.
A criminal settlement, which could happen in the coming months, would also include specific measures to ensure that the company would not engage in further cheating.
Shares of VW closed up 1.7 percent at 107.85 euros after rising as much as 5 percent earlier in the day.
"We didn't follow a multiyear, grind-it-out litigation strategy, which would have been counterproductive for Volkswagen," said Robert Giuffra Jr., the company's lead lawyer.
"We moved with lightning speed to settle with our federal and state regulators and the private plaintiffs."
Under the Justice Department deal, VW will provide US$2 billion over 10 years to fund programs directed by the state of California and the US Environmental Protection Agency to promote construction of electric vehicle charging infrastructure, development of zero-emission ride-sharing fleets and other efforts to boost sales of cars that do not burn petroleum.
VW also agreed to put up US$2.7 billion over three years that government and tribal agencies would use to replace old buses or to fund new infrastructure at ports to reduce diesel emissions.
The settlement covers 475,000 2.0 litre diesel Jetta, Beetle, Audi A3, Golf, and Passat vehicles from the 2009-2015 model years.
Also on Tuesday, VW announced a separate settlement with at least 44 US states, the District of Columbia and Puerto Rico that will cost at least US$600 million, bringing the total to as much as US$15.3 billion.
Deputy US Attorney General Sally Yates said a criminal investigation remained active. "We're looking at multiple companies and multiple individuals," she said.
"By duping regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment," she added.
VW still faces criminal investigations in Germany and other countries, as well as a raft of lawsuits from investors around the world for what they describe as losses incurred after the scandal erupted.
In addition, European governments and consumer lobby groups are calling for the automaker to provide compensation similar to what is being offered in the United States.
To date, VW has rejected such claims, saying its vehicles in Europe will not lose their value because of technical fixes already approved by regulators.
The company is planning a multi-billion-euro investment program for the introduction of more than 30 fully-electric cars by 2025.