File photo: Michael Probst / AP

Berlin, Germany - Politicians and car bosses agreed on Wednesday to overhaul engine software on 5.3 million diesel cars to cut pollution and try to repair the industry's battered reputation.

However, environmentalists said the plan - almost two years after Volkswagen admitted to cheating on US diesel emissions tests - was too little, too late, and vowed to press ahead with legal action aimed at banning polluting vehicles.

Chancellor Angela Merkel's government has come under mounting pressure for not doing enough to crack down on vehicle pollution and for being too close to powerful carmakers.

The issue has become a central campaign topic ahead of September's national election, prompting the government to summon car bosses to try to avert moves in some cities to force bans on diesel vehicles.

First step

Justice minister Heiko Maas said the agreement was only a first step, warning that bans on diesel vehicles could not be ruled out and urging car makers to focus more on consumers.

"The legal requirements for clean air remain in effect," he said.

Politicians have been wary of angering the owners of 15 million diesel vehicles and damaging an industry that is the country's biggest exporter and provides about 800 000 jobs. They've stopped short of demanding costly mechanical modifications to engine and exhaust systems and said they had agreed for now on software updates for 5.3 million cars.

Environment minister Barbara Hendricks said the software updates were just a first step in cutting emissions.

"We expect a new culture of responsibility from carmakers," she said. "There is much to make good - to the environment, to people in cities, car owners and not least to the security of the car industry in Germany and its hundreds of thousands of jobs."

Increased stakes 

The stakes have increased for German carmakers in recent weeks as Britain and France announced plans to eventually ban all diesel and petrol vehicles and Tesla has launched its first mass-market electric car. Meanwhile, BMW, Daimler, Audi, Porsche and Volkswagen are being investigated by European regulators for alleged anti-competitive collusion.

The DUH environmental group said the initiative had failed as software updates would result in a cut of no more than three percent of emissions of toxic nitrogen oxides, adding it would pursue court cases for diesel bans in 16 cities.

DUH head Juergen Resch said: "Today's summit is bad news for hundred of thousands of people who will get sick and 10 600 who will die prematurely due to NOx each year."

Transport minister Alexander Dobrindt said a refusal by foreign carmakers to participate in the plan was "completely unacceptable". Carmakers also agreed to fund incentives aimed at encouraging consumers to trade in older diesel cars that cannot be helped with software updates.

'No confidence'

Motorists' association VDA said the software updates would cost Volkswagen, Daimler and BMW together at least 500 million (R8 billion), while scrapping incentives would be much more expensive.

Evercore analyst Arndt Ellinghorst said the costs were manageable for the industry, but cautioned: "What the agreement doesn’t do is restore consumer confidence in diesel engines."

Car sales data on Wednesday showed diesel car sales fell 12.7 percent in July. Diesel now makes up only 40.5 percent of new car sales in Germany, down from 46 percent at the end of 2016.

An opinion poll published on Wednesday by Die Welt newspaper showed 73 percent of Germans want politicians to take a tougher line with the car industry on air pollution.

Volkswagen's emissions test cheating - which was exposed by US regulators - led to a string of revelations that showed diesel vehicles from most manufacturers release far more NOx gases on the road than in laboratory tests used to assess their safety.

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