These are not good times for the makers or owners of diesel cars, particularly in their European stronghold, where on average half of all new vehicles had been sold with diesel engines.

Strict new real-world emission tests have proven hard to meet, consumers are starting to shy away from buying new diesels, and the values of used cars with diesel engines have fallen.

Now, more pain for German automakers may be on the way as authorities walk the tightrope between reducing smog-causing emissions and preserving tens of thousands of jobs.

DON'T MISS: Audi, Mercedes now updating European diesels for emissions; more to come? (Jul 2017)

German transport minister Andreas Schuer indicated in a television interview Tuesday that carmakers, including BMW, Daimler, and VW Group, could be asked to contribute to a 5-billion-euro fund for hardware retrofits to clean up older diesel vehicles.

The news was originally reported last week by the German media outlet Der Spiegel, and covered in English on Tuesday by Bloomberg.

While Schuer said discussions about any such plan were "completely open" and declined to confirm the plan, he underscored that owners of diesel vehicles should not be hit with the bill for what he called the auto industry's "mistakes" in building high-emitting diesel engines.

Exhaust emissions from tailpipe [photo: Simone Ramella, 2005, used under Creative Commons 2.0]

Exhaust emissions from tailpipe [photo: Simone Ramella, 2005, used under Creative Commons 2.0]

The auto industry agreed late last summer to update the software in millions of recent and old diesel vehicles to reduce their emissions of nitrogen oxides, a major contributor to urban smog.

That agreement was seen as relatively inexpensive, and commentators suggested the German makers had dodged an expensive bullet.

Schuer stressed that automakers must finish upgrading all 5.3 million affected vehicles with the new software by the end of this year.

READ THIS: German court rules cities may ban older diesel vehicles to cut air pollution

But those measures have not quelled increasing numbers of cities, both in Germany and elsewhere in Europe, from moving forward on plans to ban the oldest and highest-emitting diesels from entering center-city zones altogether.

A major setback came in February, when a German judge ruled that it was legal for cities to ban certain diesel vehicles from their urban cores for the purpose of reducing vehicular emissions that contribute to levels of air pollution in excess of EU rules.

A 250-million fund for diesel upgrades and contributions to cities to modify or replace older diesel vehicles has already been agreed to, Schuer said, but the proposal for a 5-billion-euro fund for hardware retrofits would be a much larger burden for German automakers.

Selective Catalytic Reduction (SCR) process for diesel exhaust aftertreatment [Diesel Tech Forum]

Selective Catalytic Reduction (SCR) process for diesel exhaust aftertreatment [Diesel Tech Forum]

The country's automotive sector accounts for 800,000 jobs, and German parts supplier Bosch has enormous sales in diesel components.

At an industry level, German lawmakers and auto-industry companies together feel a need to backstop diesel as the companies increase the speed and amount of their investments in battery-electric vehicles.

CHECK OUT: Used diesel demand drops in Germany over fear of upgrades (Aug 2017)

But investments in the billions of euros to add new and expensive emission-aftertreatment hardware to hundreds of thousands of the country's dirtiest diesels would represent a costly distraction from that expensive and challenging transition to electric cars.

The challenge is that electric cars require one-third fewer workers to assemble, and the highest-value components—the electrode film in their battery cells—is not produced by the auto industry at all, but usually comes from Asian consumer-electronics companies.