German auto giant Volkswagen revealed on Tuesday that 11 million of its diesel cars worldwide are equipped with devices that can cheat pollution tests, a dramatic escalation of the scandal that has wiped over a third off the company\’s market value and now threatens to topple its chief executive.
Authorities from France to South Korea to the United States announced investigations and threatened legal action, prompting Volkswagen to announce that it was setting aside 6.5 billion euros ($7.3 billion) in provisions for the third quarter to cover the potential costs of the scandal.
VW shares, which dived 17 percent on Monday, plunged by another 23 percent to a low of 101.30 euros during trade on the Frankfurt stock exchange as the automaker\’s new revelations, including a warning that it will have to lower its profit outlook, sent investors fleeing.
When the manipulation of pollution tests was first publically revealed on Friday, the US authorities said it concerned nearly half a million diesel vehicles in the United States manufactured by the Volkswagen group.
"Further internal investigations have shown that the software concerned is also installed in other diesel vehicles," VW said in a statement.
"Anomalies have shown up in around 11 million cars worldwide that are equipped with a specific engine type," added the car manufacturer, the world\’s biggest by sales in the first half of this year.
"In order to cover the necessary service and other measures to win back customer confidence, VW plans to set aside 6.5 billion euros in provisions in the third quarter. The group\’s earnings targets for 2015 will be adjusted accordingly."
The scandal has led to France calling for a Europe-wide probe into the revelations, South Korea summoning Volkswagen officials, and the US Justice Department reportedly launching a criminal investigation.
The impact on the reputation of Volkswagen and other car makers is hard to measure.
German Chancellor Angela Merkel called on the VW 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.
Industry experts say VW chief executive Martin Winterkorn\’s job is on the line.
The regional daily Tagesspiegel said his dismissal had already been decided by the steering committee of car maker\’s supervisory board and would be officially sealed at a meeting of the full 20-member board this Friday.
US regulators have ordered Volkswagen to fix the defective vehicles and launched an investigation.
The German firm has halted all diesel vehicle sales in the United States during the US probe, which could lead to fines amounting to a maximum of more than $18 billion.
The shockwave of the scandal has slashed VW\’s market capitalisation by about 25 billion euros to 51 billion euros in just two days.
Other automobile stocks were also dragged lower with Daimler shares down 7.03 percent and BMW shedding 7.17 percent on Tuesday.
"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," the chief executive of Volkswagen America, Michael Horn, said at an event in New York late Monday, according to video posted by CNBC.
French Finance Minister Michel Sapin requested a Europe-wide probe, telling French radio on Tuesday that cars manufactured by other European car makers should be checked so as to reassure the public.
South Korean officials summoned VW representatives for explanations on Tuesday, saying tests would be started by "no later than next month."
In addition to the environmental probe already under way, the US Department of Justice has launched a criminal investigation, US officials told the Bloomberg news agency. The Justice Department and Volkswagen declined to comment on the report.
According to the US authorities, VW has admitted that it had equipped about 482,000 cars in the United States with sophisticated software that 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 Friday along with California authorities.
"Using a defeat device in cars to evade clean air standards is illegal, and a threat to public health," said Cynthia Giles, enforcement officer at the EPA.
In Germany, the government has already launched an investigation into whether Volkswagen or other car makers are doing anything similar in Germany or Europe.
The German daily Frankfurter Allgemeine Zeitung reported that the national supervisory authorities had alerted VW to discrepancies in the emissions data in May 2014 and some cars were even recalled.
Transport Minister Alexander Dobrindt told the Bild daily that he had asked Germany\’s Federal Motor Transport Authority "to immediately have specific and extensive tests conducted on all Volkswagen diesel models by independent experts."
So far the scandal has been restricted to Volkswagen.