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Volkswagen car drivers in the US affected by its emissions scandal are due to get up to $10,000 (£7,500) after the firm agreed a deal with regulators.

The German car giant will offer to repair or buy back the affected diesel vehicles and pay owners between $5,000 and $10,000 in compensation.

Last year, US regulators discovered that some VW cars were fitted with software that distorted emission tests. The German giant subsequently said 11 million cars worldwide were affected.

The total deal will cost Volkswagen $14.7bn. It is expected to spend up to $10bn on buybacks and compensation, and will put a further $2.7bn into an environmental fund operated by the Environmental Protection Agency (EPA), as well as invest $2bn over the next decade into zero emission technology.

Separately, the car firm has agreed to pay $603m to 44 US states, the District of Columbia and Puerto Rico to resolve existing and potential state consumer protection claims.

However, it is still facing billions of dollars more in potential fines with lawyers currently working on settlements for 80,000 three-litre diesel engines.

‘Flagrant violation’

Nonetheless, Volkswagen chief executive Matthias Müller described the settlement as “a significant step forward”.

“We know that we still have a great deal of work to do to earn back the trust of the American people. We are focused on resolving the outstanding issues and building a better company,” he added.

VW also said the settlement was within the €16.2bn (£12.6bn) it had already set aside for for the crisis. The huge settlement will affect 475,00 owners of the 2009 to 2015 Volkswagen diesel models of Jettas, Passats, Golfs and Beetles as well as the TDI Audi A3.

Customers can choose to sell back their vehicle to Volkswagen, for its price last September before the scandal was revealed, or terminate their lease without incurring any penalty charges.

They can also choose to have their vehicle modified free of charge and keep it.

Customers who select any of the options will still receive compensation of between $5,100 and $10,000. They would also still be able to decline the VW offer and sue the firm on their own.

Deputy Attorney General Sally Yates said the VW scandal was one of the “most flagrant violations of our consumer’s environmental laws in our country’s history”.

“By duping the regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment.

“This partial settlement marks a significant first step towards holding Volkswagen accountable for what was a breach of its legal duties and a breach of the public’s trust,” she said.

Arthur Wheaton, an automotive industry specialist at Cornell University’s ILR School, said the settlement went a long way to addressing the uncertainty surrounding the carmaker since the scandal emerged.

“It’s expensive, but because Volkswagen has put a decent offer on the table it will avert many of the individual law suits.”

Mr Wheaton also said the firm’s $2bn investment into zero emission technology could “dramatically change VW’s image”.

“The US is a forgiving market. It [the scandal] hasn’t done any permanent damage and now it’s likely to focus more on electric and battery cars in the US,” he said.

Last September, the EPA found that many VW cars being sold in America had a “defeat device” – or software – in diesel engines that could detect when they were being tested, changing the performance accordingly to improve results.

The German car giant has since admitted cheating emissions tests in the US. Some models could have been pumping out up to 40 times the legal limit of the pollutant, nitrogen oxide, regulators disclosed.

The provision VW made for the scandal pushed the car maker into its biggest ever annual pre-tax loss of €1.3bn for 2015, compared with a profit of €14.7bn the previous year.

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