Volkswagen on Thursday reached an agreement to compensate US car dealers for the effects of an emissions cheating scandal as pressure rose for it to fix rigged three-liter diesel engines already on the road.

During a hearing in San Francisco, lawyers reported that they had reached "an agreement in principle" to resolve disputes between the German automaker and 652 dealerships in the United States over losses from the diesel-cheating scandal.

Details of the proposed settlement with dealerships were not disclosed in court.

Hagens Berman, the law firm representing VW dealers in the United States, said in a statement released after the hearing that the German automaker is offering to create a settlement fund that would dispense money to franchise dealerships within 18 months.

The size of the fund was not disclosed and Hagens Berman said that the payout formula was still being refined.

Terms of the proposed settlement also call for Volkswagen to buy back unfixable, used diesel vehicles on dealer lots under the same terms the company gives to consumers, the law firm said.

"These 652 mostly small business owners were blindsided by the diesel emissions scandal and have seen the value of their businesses plummet," the firm's managing partner Steve Berman said in the release.

"Our investigation has uncovered no evidence that VW dealers had any idea that VW was selling them cars that had defeat devices installed."

The proposed settlement with US dealerships will be submitted to US District Court Judge Charles Breyer in mid-September for consideration, the firm said.

- Deal or trial -

At the hearing Thursday, Breyer gave VW until October 24 to come up with a fix for three-liter diesel engines rigged to cheat emissions tests, or face trial.

Lack of an agreement on the issue would lead to a trial starting by the middle of next year, Breyer told attorneys.

"I want to have a strong sense of urgency," he said.

Volkswagen got a preliminary green light last month on a $14.7 billion plan to compensate owners of some 480,000 cars with two-liter diesel engines.

That represents the bulk of the vehicles involved in the US scandal that emerged after VW admitted last year that it had used emission-cheating software.

Engines were configured to reduce harmful nitrogen-oxide emissions during official pollution tests, while allowing emissions of up to 40 times the legal limit during actual driving.

But the auto giant has yet to reach an agreement regarding 80,000 additional vehicles with three-liter engines.

"Volkswagen still believes it can fix the vehicles without affecting their performance," Robert Giuffra, an attorney for the car maker, told the judge.

Giuffra said he was confident Volkswagen could by early November provide the authorities with details of a way to fix some of the three-liter engines and the potential to apply the repair to the rest.

But Breyer moved the deadline up to October 24, saying he wanted to give the parties involved a "strong sense of urgency" along with a "sense of reality."

- Criminal probe -

A November 3 hearing date was set to give the court an update, and the judge advised all sides to begin discussing what would be done if repairing the three-liter motors was not possible.

Breyer also told attorneys to be ready with proposed dates for trial "during the summer" of next year if there was no agreement.

Volkswagen admitted in September 2015 that it had installed emissions test-cheating devices on nearly 600,000 diesel-powered vehicles in the United States and as many as 11 million worldwide.

Financial provisions related to legal implications of the scandal caused Volkswagen to record a 2105 net loss, its first in more than 20 years.

Agreements in Breyer's court would cover only civil litigation. VW is the subject of a criminal investigation in the United States and also faces a cascade of lawsuits and probes in other parts of the world, especially in Europe and Canada.