The San Francisco judge handling the possible trial of Volkswagen in the emissions cheating scandal said Tuesday that there had been "substantial progress" toward a final settlement.

Judge Charles Breyer said the German automaker was "on track to meet the court deadline" of June 21 for a deal with the government and car owners who sued Volkswagen for billions of dollars.

In a hearing in the federal district court, Breyer affirmed the general outlines of the in-principle deal announced one month ago in which the world's number-two automaker said it would buy back 480,000 illegally polluting 2.0 liter diesel cars from their owners, or offer them compensation and a fix of the emissions issue.

The offer also included creation of a fund for environmental protection, the company said at a court hearing.

The details of the potential settlement between Volkswagen USA, the Department of Justice and the Environmental Protection Agency have not been released, and Breyer stressed the need to keep the talks confidential until a final agreement can be presented to the court.

Then it will be revealed for public comment, with an eye to finalizing it in a hearing targeted for July 26.

The deal appears to be enough to allow Volkswagen to avert a huge trial over how it would deal with the scandal that has already deeply damaged the company.

Volkswagen has admitted it installed illegal software in 11 million VW, Porsche and Audi cars with diesel engines worldwide that intentionally masked the vehicle's real emissions levels during testing.

The San Francisco lawsuit had accused Volkswagen of major damages to the environment and to the owners of the tainted diesel cars.

But both the company and the US agencies had sought a deal to avoid trial that included a credible fix to the vehicles, or for VW to go as far as to take all of them off the road and compensate owners.

An agreement would not end Volkswagen's troubles. The company will have to address similar charges over its 3.0 liter diesel cars with emissions-cheating devices.

It also faces fines potentially running to the tens of billions of dollars from US regulators, and a criminal investigation over the scandal in the United States.

At the same time it is facing similar charges and litigation in Europe and elsewhere for the same issues.

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VOLKSWAGEN