US criminal probe on Volkswagen emissions scandal

The US Justice Department is conducting a criminal investigation of Volkswagen's admission to cheating on federal air pollution tests, according to two US officials familiar with the inquiry.

Volkswagen said last week it's co-operating with regulators probing gaps between emissions on the road and lab tests on some diesel models, affecting more than half a million cars. The US officials described the inquiry on condition of anonymity because it's a continuing investigation.

The Wolfsburg, Germany-based automaker plunged as much as 23 per cent Monday to €125.40 (NZ$222) in Frankfurt, wiping out about €15.6 billion (NZ$27b) in market value. The stock closed at €132.2, its lowest in more than three years.

Volkswagen's admission is putting pressure on Chief Executive Officer Martin Winterkorn to repair the reputation of the world's biggest carmaker. Winterkorn, whose contract renewal is scheduled for a supervisory board vote on Friday, now faces a serious challenge to his leadership, said Arndt Ellinghorst, a London-based analyst for Evercore ISI.

"This latest saga may help catalyse further management changes at VW," Ellinghorst wrote in a note Monday.

US Justice Department spokesman Wyn Hornbuckle declined to comment.

Criminal inquiries can take months or years and lead to charges against individuals and companies. They can also result in fines and deferred-prosecution agreements, such as the one recently struck with General Motors, to spur companies into improving their behavior and addressing problems revealed during the investigations.

Volkswagen admitted on September 18 to fitting some of its US diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said Friday. Affected are diesel versions of the VW Jetta, Golf, Beetle and Passat and the Audi A3.

During normal driving, the cars with the software - known as a "defeat device" - would pollute 10 times to 40 times the legal limits, the EPA estimated. The discrepancy emerged after the International Council on Clean Transportation commissioned real-world emissions tests of diesel vehicles including a Jetta and Passat, then compared them to lab results.

VW said it's co-operating with regulators probing gaps between emissions on the road and lab tests on some diesel models. According to the EPA, the company insisted for a year that discrepancies were mere technical glitches.

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Winterkorn, who has led VW since 2007, was forced to halt sales of the cars on Sunday and issue a public apology, saying he's "deeply sorry" for breaking the public's trust and that VW would do "everything necessary in order to reverse the damage this has caused."

The violations could result in as much as US$18 billion (NZ$28b) in fines, based on the cost per violation and the number of cars.

The US accusations are "grave" and must be clarified swiftly, said Stephan Weil, prime minister of the German state of Lower Saxony, which owns 20 per cent of Volkswagen's voting shares. "Possible consequences can be decided after that."

The European Commission also said it's taking VW's cheating seriously and is in contact with US regulators and the company about details of the case.

 - The Washington Post

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