HAMBURG (Reuters) - Volkswagen is not prepared to cover the full cost of hardware retrofits for older diesel vehicles in Germany, a source at Volkswagen said, contradicting a deal announced by the German coalition parties on Tuesday. "If hardware retrofits are accepted by customers, then we will participate (in the costs) to the extent agreed," the person said. Under the coalition parties' deal, owners of older diesel cars in German cities where the air is particularly polluted will be able to choose between trade-in incentives and a hardware upgrade. (Reporting by Jan Schwartz; Writing by Maria Sheahan; editing by Sabine Wollrab and Thomas Seythal)