The action against the seven manufacturers was launched last year by the Environmental Protection Agency (EPA) and Justice Department after tests on one of the company's engines by the EPA discovered the "defeat devices". These consist of electronic controls which enable engines to meet federal emission standards during testing, but disable the emission control system during highway driving - something expressly prohibited by the Clean Air Act.
EPA Administrator Carol Browner commented: "These defeat devices are really deceit devices - they defeat important public health protections and deceive the American people."
Engines with the devices, apparently installed to improve fuel efficiency, emit up to three times as much nitrogen oxides as permitted while being driven on the highway. The seven companies are alleged to have sold 1.3 million engines fitted with the devices since 1988, emitting 1.3 million tons of excess NOx this year alone - equivalent to the emissions from an extra 65 million cars on the road.
The biggest financial penalty in the out-of-court settlement is to be paid by Caterpillar and Cummins, which have produced 320,000 and 400,000 engines, respectively, fitted with defeat devices. They will both pay $25 million. About 5.7 million tons of excess NOx has been emitted by the affected engines.
The other five manufacturers are Detroit Diesel, Mack Trucks and its business partner Renault, Navistar and Volvo Truck, which produced 608,000 engines that have emitted 10 million tons of excess NOx. The seven companies hold 95% of the US heavy duty diesel market.
The companies have not admitted liability, but say that they preferred to settle the case out of court to avoid protracted litigation.
The EPA claims that other elements of the settlement will cost $850 million, although the engine makers say this is an overestimate. The measures include bringing forward by 15 months compliance with tighter emission standards which were due to come into force in January 2004, recalls of pick-up trucks for recalibration of their electronic engine controls, and modifications of heavier engines when they have their first overhaul.
The case is the most embarrassing of three Clean Air Act settlements with the automotive industry over the past four years. In June, American Honda and Ford agreed settlements worth £267 million and $8 million, respectively, for selling vehicles with defeat devices. And in 1995, General Motors settled for $45 million for installing defeat devices in 500,000 Cadillacs.