Three years have passed since Volkswagen's 2015 admission to installing cheating devices in 11 million vehicles worldwide, allowing them to secretly spew far more harmful nitrogen oxide (NOx) than legally permitted.
Since then, other carmakers like BMW and Daimler have been targeted in official probes, while courts have opened the way for cities to ban the dirtiest diesels to meet EU air quality targets, in some cases even ordering them to do so.
Government and industry have for months sought a solution that spares the sector – a pillar of the German economy with 800,000 jobs – while cleaning up urban air and pacifying drivers whose vehicles could plummet in value.
Many in Merkel's conservative CDU/CSU alliance and car company bosses would prefer to sell millions of new cars to replace more polluting older models.
“The fastest and best way for the environment is to replace the old fleet with a new one,” the chancellor said Thursday ahead of talks with executives.
Tabloid-style Bild am Sonntag reported Sunday that carmakers could stump up as much as €10,000 euros per vehicle to encourage drivers in 14 of the dirtiest towns to make the switch.
A transport ministry spokeswoman told AFP “we are working on a solution that isn't just targeted at a few affected cities”.
But Carsten Schneider, chief whip for Merkel's junior coalition partners the Social Democrats (SPD), warned on ARD public television Monday that “we shouldn't get our hopes too high” about a nationwide fix.
'Customer should not pay'
NOx and fine particles have been linked to respiratory illnesses and heart problems, leading to thousands of premature deaths each year.
Some 70 German cities including Munich, Stuttgart and Cologne recorded average nitrogen dioxide levels above EU thresholds in 2017, according to the Federal Environment Agency.
The gravity of the problem means some of Merkel's conservatives and the SPD are loath to be seen as rewarding auto bosses for their perceived dodgy dealing.
They urge instead that the companies should pay to refit older cars with more effective exhaust treatment systems.
“There will be possibilities for some to obtain a refit” in the final deal, Merkel promised, adding that “in this case, we believe that the customer should not have to pay anything.”
Environment Minister Svenja Schulze also stressed that it was “the car industry that got us into trouble, and it should pay for it”.
German carmakers have so far responded to “dieselgate” by offering drivers software upgrades and trade-ins, but they have resisted costly hardware fixes.
Last week the Frankfurter Allgemeine Zeitung reported the firms are only planning to extend a partially funded refit for vehicles built to the so-called Euro-5 standard, which covers cars registered from September 1st, 2009.
Future at stake
The contrast between carmakers' ability to dig in their heels in Europe, compared with Volkswagen's mammoth bill for fixes and buybacks in the United States, has riled consumer advocates.
In 2016 the carmaker settled a class action suit for $14.7 billion, offering compensation to nearly half a million diesel owners, who were also eligible for buybacks or free refits.
Dieselgate has so far cost Volkswagen €27 billion in compensation, buybacks, fines and legal costs and the group remains entangled in legal woes at home and abroad.
Nevertheless, it booked €11.4 billion in profit for 2017.
Industry bosses say that their cash piles are needed to fund investments in future mobility, as competition mounts in battery-electric vehicles, self-driving cars and digital services.
And with tighter limits on emissions of carbon dioxide (CO2) biting in the EU from 2021, manufacturers are eager to get as many of their newest, cleanest cars on the road as possible to minimise their exposure to fines.