U.S. District Judge Charles Breyer said the negotiations were complicated, with many details that needed to be worked out. He granted the parties' request for a "final" extension to Tuesday to report whether they had reached a settlement. The judge said he was optimistic they would reach one.
Breyer had asked the sides to update him on a potential settlement after twice postponing a Friday hearing to give them more time to negotiate.
The talks aim to hammer out what to do with about 80,000 3-liter diesel cars that were programmed to skirt emissions tests. Volkswagen attorney Robert Giuffra has said the company believes it can recall and fix the 3-liter vehicles without affecting their performance.
The German automaker previously reached a deal for the other 475,000 polluting vehicles in the scandal. That settlement gives owners of those 2-liter diesel cars the option to have Volkswagen buy back their vehicles regardless of condition for the full trade-in price on Sept. 18, 2015, when the scandal broke, or pay for repairs.
Volkswagen also will pay owners $5,100 to $10,000 each, depending on the age of the car and whether the owner had it prior to Sept. 18 of last year.
The company has agreed to spend up to $10 billion compensating consumers.
The global scandal erupted last year when the U.S. Environmental Protection Agency said Volkswagen fitted many of its cars with software to fool emissions tests. Car owners and the U.S. Department of Justice sued.
The software recognized when the cars were being tested on a treadmill and turned on pollution controls. The controls were turned off when the cars returned to the road. The EPA alleged the scheme let the cars spew up to 40 times the allowable limit of nitrogen oxide, which can cause respiratory problems in humans.
The scandal has damaged Volkswagen's reputation and hurt its sales. The company has reached a separate $1.2 billion deal with its U.S. car dealers and is still facing potentially billions more in fines and penalties and possible criminal charges.
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