By Simon Morgan
Volkswagen's pollution cheating scandal has escalated dramatically after the automaker revealed 11 million of its cars worldwide could be affected, wiping a third off the company's market value and threatening to topple its chief executive.
As the United States opened a criminal investigation into Volkswagen, chief executive Martin Winterkorn on Tuesday (local time) offered his "deepest apologies" for the scandal which threatens to tarnish Germany's pristine industrial reputation.
"I am infinitely sorry that we have disappointed people's trust. I offer my deepest apologies to our customers, the authorities and to the public at large for our misconduct," the 68-year-old executive said in a video statement and promised to be "ruthless" in getting to the bottom of the scandal.
The German firm has halted all diesel vehicles sales in the United States during the US probe, which could lead to fines amounting to a maximum of more than US$18 billion (NZ$28.59 billion).
Authorities from France to South Korea also said they would investigate the affair, prompting Volkswagen to announce that it was setting aside 6.5 billion euros (NZ$11.48 billion) in provisions for the third quarter to cover the potential costs of the scandal.
VW shares, which dived 17 percent on Monday, closed down a further 19.8 percent on Tuesday at 106.00 euros, as the automaker's new revelations, including a warning that it will have to lower its profit outlook, sent investors fleeing.
When US authorities announced on Friday that special software on VW diesel vehicles drastically reduced output of pollutants when they were undergoing emissions tests they said it concerned nearly half a million vehicles sold in the United States.
But on Tuesday VW said that an internal investigation had shown that the software was also installed in other diesel vehicles and affected around 11 million cars worldwide.
The impact on the reputation of Volkswagen, whose parent company also owns brands including Audi, Skoda and Lamborghini, is hard to measure.
German Chancellor Angela Merkel called on the company to show "full transparency" to clear up the matter. "I hope the facts will come to light as soon as possible," she told reporters in Berlin.
While the scandal has been restricted to Volkswagen so far, environment protection groups, particularly in Germany, suspect other carmakers may be using similar technology.
The US Environmental Protection Agency said on Monday that it will screen for defeat devices in other manufacturers' diesel vehicles now on the road.
Industry experts believe Winterkorn's job is on the line.
The regional daily Tagesspiegel said his dismissal had already been decided by the steering committee of carmaker's supervisory board and would be officially sealed at a meeting of the full 20-member board this Friday.
The sophisticated software behind the scandal covertly turns off pollution controls when the car is being driven and turns them on only when it detects that the vehicle is undergoing an emissions test.
With the so-called "defeat device" deactivated, the car can spew pollutant gases into the air, including nitrogen oxide in amounts as much as 40 times higher than emissions standards, said the US Environmental Protection Agency, which announced the allegations on Friday along with California authorities.
The chief executive of Volkswagen America, Michael Horn, has candidly apologised and admitted wrongdoing after the German car giant was caught cheating in US pollution measuring tests.
"Our company was dishonest, with the EPA and the California Air Resources board, and with all of you and - in my German words - we have totally screwed up," Horn said at an event in New York, according to video posted by CNBC.
Horn pledged to "make things right with the (US) government, the public, our customers, our employees and also very important, our dealers."
Volkswagen, the world's largest automaker by sales, has revealed that 11 million diesel cars worldwide are equipped with devices that can cheat pollution tests.
The scandal went public on Friday when US regulators ordered the company to fix the defect and said they were launching a probe.
The US Department of Justice has reportedly launched a criminal investigation and the scandal has also led to France calling for a Europe-wide probe into the revelations and South Korea summoning Volkswagen officials.
The German firm halted all diesel vehicle sales in the United States during the US probe, which could lead to fines of more than US$18 billion (NZ$28.59 billion).
VW has said it was setting aside US$7.3 billion in provisions for the third quarter to cover the potential costs of the fallout.