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(Reuters) - Volkswagen AG and the California Air Resources Board will begin testing hardware and software that could help the German automaker avoid buying back as many as 475,000 diesel cars sold in the United States with improperly designed pollution controls, the head of the board told Reuters.
Air Resources Board Chair Mary Nichols said the agency is working with the German automaker to test potential fixes for three generations of Volkswagen cars equipped with 2.0-liter diesel engines and pollution control systems improperly designed to operate only during government pollution control tests.
Winning regulatory approval to repair, rather than buy back, diesel cars that don't comply with U.S. clean air standards would give a boost to Volkswagen's efforts to contain the financial and reputational damage caused by the diesel emissions cheating scandal. Nichols said VW is making strides in its effort to regain credibility with regulators.
“They brought in a whole new team of people to work on various aspects of this,” Nichols said in an interview. "There’s just a greater sense that we’re dealing with people who have access to the decision makers in Germany, and who understand their credibility is on the line."
Nichols' positive words about VW are significant because the state of California is working with the U.S. Environmental Protection Agency to evaluate the automaker's proposed fixes.
In January, the Air Resources Board rejected a Volkswagen proposal to repair rigged diesel emissions systems, saying it fell "far short of meeting the legal requirements."
Volkswagen officials, Nichols said, have told California officials they believe combinations of hardware and software could be developed to allow all three generations of 2.0-liter diesel cars sold between 2009 and 2016 to stay on the road.
VW spokeswoman Jeannine Ginivan said on Thursday the automaker "continues to work with the EPA and CARB to develop approved emissions modifications as quickly as possible. If proposed modifications are approved by the EPA and CARB, Volkswagen will modify eligible vehicles free of charge" for owners of the affected vehicles.
The EPA said in a statement it will work "in close coordination with our partner CARB, will test potential emissions modifications for the three different generations of the 2.0-liter vehicles as they are developed and submitted by VW."
Under the terms of a $14.7 billion settlement with state and federal regulators, Volkswagen must offer to buy back cars it sold in the United States between 2009 and 2016 that had 2.0-liter diesel engines with emissions control systems designed to cheat government tests.
The company has admitted pollution controls on these cars were rigged to function properly only during government emissions tests. Federal and California authorities alleged the controls were deactivated during normal driving to extend the life of the equipment, improve mileage or avoid noisy or rough engine performance.
However, if Volkswagen can satisfy regulators that repairs will significantly reduce emissions of oxides of nitrogen and other pollutants, the company could offer consumers a choice to keep their cars, and possibly reduce the costs of the settlement for the automaker.
Volkswagen must show it can improve the performance of the non-compliant vehicles to within 80 to 90 percent of the pollution standards.
State and federal regulators would consider the cars in compliance even if they fall short of the legal limits because Volkswagen has agreed to put up to $2.7 billion over three years into a fund to reduce diesel pollution from other sources, such as older buses, Nichols said.
Nichols added that there been no progress on developing a repair for about 85,000 Volkswagen, Audi and Porsche cars sold with 3.0-liter diesel engines that also have pollution control systems programmed to defeat emissions tests.
Volkswagen lawyer Robert Giuffra said at a court hearing this month he expects the company will meet a July 29 deadline to make a submission for fixing certain 2.0-liter cars.
Volkswagen has admitted to selling 11 million diesel vehicles worldwide with rigged emissions systems, including 475,000 cars in the United States.
Additional reporting by David Shepardson in Washington and Andreas Cremer in Berlin