Volkswagen
Volkswagen’s settlement with its dealers is subject to the approval from a federal judge Getty Images

Volkswagen AG has agreed to pay up to $1.2bn (£925m) to its 652 US dealers. This was revealed by the German automaker on Friday in its filings made to the US District Court in San Francisco.

Each dealer is said to receive an average payout of $1.85m over 18 months. The payment comes as compensation to them over VW's emissions scandal, where it had agreed to cheating on the US diesel emission tests for several years.

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Franchised dealers are said to have been negatively affected amid this scandal. They have been stuck with vehicle inventory as sales declined. The dealers are also said to have incurred other financial burdens such as a potential decline in the value of their dealerships.

As part of the settlement, VW will continue making some incentive payments to these dealers, buy back diesel vehicles which dealers fail to sell and stop capital improvements for two years that it earlier wanted dealers to make. This settlement is, however, subject to an approval from a federal judge.

This agreement comes a year after VW was forced to stop sales of its diesel vehicles in the US after a few researchers exposed that thousands of its cars had defeat devices that helped them emit lesser emissions while undergoing a government-administered test. However, the researchers said these cars would emit more emissions when on the road and when the cheat device was turned off.

The German automaker had eventually admitted to cheating the tests and has also agreed to spend up to $16.5bn to meet environmental, state and owner claims in the US. However, according to Reuters, VW still faces billions in potential fines and is also expected to resolve the fate of these polluting vehicles. This could include an expensive buy-back of the affected vehicles if it fails to convince US regulators that these can be fixed.

On Friday, the US Justice Department said in a court filing that it was still working on "a technical solution that reduces the emissions of these vehicles." It added that the country would "continue to vigorously pursue its claims for civil penalties to fully hold (Volkswagen) accountable."