Volkswagen 1.6 TDI Motor.jpg
Photograph: Volkswagen

Volkswagen has set aside 16.4 billion euros (18.5 billion dollars) to cover costs associated with the company's diesel emissions scandal, sources told dpa Thursday, the same day a settlement was announced to compensate US owners of VW cars built with software designed to cheat US emissions tests.

The cash reserve is an increase of almost 10 billion euros over the previous estimate the German carmaker had established for costs arising from the diesel emissions cheating revealed last year.

The agreement, which requires VW to buy back or fix some 500,000 affected cars, was announced by a US judge in San Francisco. It also requires VW to pay substantial damages.

Judge Charles Breyer said he was pleased to announce that the parties had submitted a "concrete plan" and set a deadline until June 21 for a detailed agreement.

The agreement was reached between VW and the US Environmental Protection Agency, California regulators, California attorney general's office and consumers. Its announcement on Thursday met the court's deadline for VW and US authorities to agree on a plan to modify about 580,000 vehicles sold in the US.

A spokesman for Volkswagen Group of America said the company was committed to earning back the trust of customers, dealers and regulators.

"These agreements in principle are an important step on the road to making things right," the spokesman said in an email to dpa.

The US Justice Department said the agreement addressed just one aspect of the department's pending case against VW - "namely, what to do about the 2-litre diesel cars on the road and the environmental consequences resulting from their excess emissions."

The department's other investigations into VW's conduct remain active and ongoing, the department said in a statement. These include possible fines reaching into the billions of dollars for violating US environmental law.

It was not clear how much the solution would cost VW, but Europe's largest carmaker appears to be heading toward its biggest annual loss. The company will formally unveil its 2015 annual results next week.

Just two years ago the company was well into the black with 11 billion euros in earnings. VW recently said its earnings before interest and taxes would be roughly at the 2014 level, before deducting the setback resulting from the diesel emissions scandal.

According to the German newspaper Welt on Wednesday, VW has agreed to pay every owner of an affected car 5,000 dollars. But neither Volkswagen nor the court confirmed that Thursday.

Shares in Volkswagen jumped in early trading Thursday following German media reports that VW had reached the deal. VW shares closed up about 6 per cent to 127 euros (145 dollars) on the Frankfurt Stock Exchange.

Breyer is hearing hundreds of lawsuits against VW from across the country after the carmaker admitted in September that many of its cars had been modified to cheat emission tests.

Based in the northern German city of Wolfsburg, VW is facing not only mounting costs of lawsuits, official investigations, recalls and vehicle modifications, but also a fall in sales around the world in the wake of the revelations about the diesel emissions affair.

VW indicated in November that it is planning cuts in its workforce, after having announced moves to cap 2016 investment spending at 12 billion euros - a cut of 1 billion euros from recent years.

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