While Transport Minister Andreas Scheuer and car bosses were hammering out a deal on anti-pollution measures in a five-hour meeting on Thursday, a court ruled that two more German cities, Cologne and Bonn, must impose bans on older diesel vehicles.
Volkswagen and Daimler are prepared to offer hardware retrofits to clean up older diesel vehicles at their own cost, Scheuer said following the meeting, adding that rival BMW was still refusing to do so.
But all three big German carmakers, including VW, were committed to spending up to 3,000 euros for various measures, including trade-in incentives.
Scheuer said they were all keen to press ahead with such incentives, which aim to convince customers to buy newer, cleaner vehicles that have lower emissions and would not be affected by driving bans.
The government has been pushing carmakers to shoulder more of the burden of retrofitting cars, though Germany's auto giants have been reluctant to take on more costs than necessary.
"Volkswagen, Daimler and BMW will make sure their customers can remain mobile," Scheuer told reporters, urging foreign rivals, like Fiat and Peugeot to match the efforts he said the German firms had made.
Scandals involving schemes to conceal the true levels of pollutant emissions from diesel cars has dealt repeated blows to the global reputation of Germany's car industry in recent years.
As the industry leaders were meeting Scheuer, a court in Cologne ordered driving bans in some parts of the city from next April, underlining the stakes for politicians concerned that a lack of progress could trigger deeply unpopular driving bans.
Environmental lobby group DUH had filed complaints against the western state of North Rhine-Westphalia, home to Cologne and Bonn, saying the cities needed to ensure their nitrogen dioxide (NO2) levels stuck to permitted limits and calling for a ban of diesel vehicles in those cities.
"It will cause disruption for the transport infrastructure of the city of Cologne and have a significant impact on residents, commuters and the whole of Cologne," said State Environment Minister Ursula Heinen-Esser.
(Writing by Michelle Martin and Maria Sheahan; Editing by Keith Weir and Alexandra Hudson)
By Matthias Inverardi and Michelle Martin