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Late Update : Volkswagen says 11 million cars hit by scandal, probes multiply

Volkswagen says 11 million cars hit by scandal, probes multiply.

Volkswagen AG (VOWG_p.DE) said a scandal over
falsified U.S. vehicle emission tests could affect 11 million of its cars around
the globe as investigations of its diesel models multiplied, heaping fresh
pressure on CEO Martin Winterkorn.

The world's largest automaker said it would set aside 6.5 billion euros ($7.3

billion) in its third-quarter accounts to help cover the costs of the biggest

scandal in its 78-year-history, blowing a hole in analysts' profit forecasts.

It also warned that amount could rise, saying diesel cars with so-called Type

EA 189 engines built into Volkswagen models worldwide had shown a "noticeable

deviation" in emission levels between testing and road use.

The U.S. Environmental Protection Agency (EPA) said on Friday Volkswagen

could face penalties of up to $18 billion for cheating emissions tests. In

addition, the U.S. Justice Department has launched a criminal probe of

Volkswagen, a source familiar with the matter said.

The investigation is likely to examine not only possible violations of the

Clean Air Act but also of broader statutes against wire fraud, false statements

to regulators and other crimes, former prosecutors not involved with the

investigation said. A Justice Department spokesman declined to comment.

New York and other state attorneys general are also forming a group to

investigate, New York Attorney General Eric Schneiderman said.

“No company should be allowed to evade our environmental laws or promise

consumers a fake bill of goods," Schneiderman said in a statement.

The crisis has sent shockwaves through Germany, with Chancellor Angela Merkel

calling for "complete transparency" from a company long seen as a symbol of the

country's engineering excellence.

Winterkorn was due to have his contract extended at a supervisory board

meeting on Friday but is now facing questions about whether he knew about the

automaker's use of software that deceived U.S. regulators measuring toxic

emissions in some of its diesel cars.

"Winterkorn either knew of proceedings in the U.S. or it was not reported to

him," Evercore ISI analyst Arndt Ellinghorst said. "In the first instance, he

must step down immediately. In the second, one needs to ask why such a

far-reaching violation was not reported to the top and then things will get

tough too."

Volkswagen's executive committee plans to meet on Wednesday to discuss the

emissions test scandal and the agenda of a full board meeting long scheduled for

Friday, sources familiar with the plans said.

A story in the Tagesspiegel newspaper - denied by Volkswagen - said the board

would replace the 68-year-old Winterkorn with Matthias Mueller, the head of the

automaker's Porsche sports car business.

Winterkorn did not mention his future in a video message posted on the

company's website in which he repeated his apology for the scandal.

Volkswagen stock tumbled another 20 percent to a four-year low on Tuesday

after some countries in Europe and Asia said they would launch investigations

themselves. Preference shares were down 19.7 percent at 106.1 euros at 1500 GMT

(1100 EDT).

At the lowest point, the declines in the preference and ordinary shares wiped

more than $30 billion off the company's market value.

Volkswagen was challenged by authorities as far back as 2014 over tests

showing emissions exceeded California state and U.S. federal limits but held off

on admitting wrongdoing until regulators threatened to withhold certification

for its 2016 diesel models that Volkswagen in early September.

In the United States, where diesel vehicles make up much less of the market

than in Europe, Volkswagen is a dominant player in the segment, accounting for

about one fifth of diesel light vehicles sold last year, according to auto

industry consultant LMC Automotive.

Ward's Auto, another consultant and publisher, said diesel vehicles made up

2.6 percent of the U.S. new car market so far this year, compared with 2.3

percent for electric-gasoline hybrid vehicles, also known for superior fuel


Volkswagen has spent $77 million so far this year on U.S. TV commercials

lauding its "clean diesel" cars, out of $164 million budgeted for advertising

thus far overall, according to iSpot.tv, a Bellevue, Washington-based company

that tracks TV ads.

Volkswagen has not made a decision on whether or not to pull its ads, a

spokeswoman said.


Winterkorn has built Volkswagen into one of the world's top-selling brands

since he took the helm in 2007, with brands ranging from budget Seats and Skodas

to premium Audis and top-end Lamborghinis and Bugattis.

But he has also faced criticism for a centralized management style which some

analysts say has hampered the company's efforts to address long-standing

underperformance in North America.

Workers in Wolfsburg, where Volkswagen employs over 50,000 people, were

dismayed by the damage to the company's image. "If Winterkorn knew of the

manipulation, then he must go," said one staffer who works in human resources at

the plant.
There have been no suggestions so far that other carmakers have engaged in

the same practices as Volkswagen. Germany's BMW (BMWG.DE) and Daimler (DAIGn.DE) have said the accusations against

Volkswagen did not apply to them.

But shares in those companies as well as rivals including Peugeot (PEUP.PA), Renault (RENA.PA) and Fiat Chrysler (FCHA.MI) fell on Tuesday amid signs regulators across

the world will step up scrutiny of vehicle tests, which environmentalists have

long criticized for exaggerating fuel-saving and emissions results.

The EPA said on Monday it would widen its investigation to other automakers,

and French Finance Minister Michel Sapin said on Tuesday an EU-wide inquiry was

needed too.

Canada's environmental agency said on Tuesday it is investigating some

100,000 Volkswagen and Audi 2009-2015 model diesel cars sold there, and is in

contact with its counterparts in the U.S. EPA and Volkswagen's Canadian unit. It

said the maximum fine for a potential breach of Canadian environmental law was

C$6 million per offense for corporations.
Germany's Transport Ministry said it would send an investigative commission

to study whether cars built at Volkswagen's headquarters complied with German

and European emissions guidelines. Italy asked VW to prove the cars sold in that

country do not contain the "defeat devices" at the center of the scandal, while

Switzerland also said it would investigate Volkswagen's diesel vehicle emissions


The European Commission said it was in contact with Volkswagen and U.S.

authorities, and it was premature to say whether specific checks on the

carmaker's vehicles were needed.

In Asia, South Korea's environment ministry said it would investigate 4,000

to 5,000 of Volkswagen's Jetta, Golf and Audi A3 vehicles produced in 2014 and

2015, and it could expand its probe to all German diesel cars if it found

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