Volkswagen chief may go as US scandal threatens $18bn in fines

The shares plunged as much as 23 percent to 125.40 euros in Frankfurt, extending the stock’s slump for the year to 31 percent. The drop wiped out about 15.6 billion euros ($17.6 billion) in value.

VW halted sales of the models involved on Sunday said Bloomberg and the company is said to be cooperating with the probe. VW has ordered its own external investigation into the issue.

VW admitted to fitting its US diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the US Environmental Protection Agency has said.

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, said Bloomberg, 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.

Winterkorn, boss since 2007, said he was “deeply sorry” for breaking the public’s trust and that VW would do “everything necessary in order to reverse the damage this has caused".

Winterkorn's contract renewal is scheduled for a supervisory board vote on Friday. He now faces a serious challenge to his leadership, said Arndt Ellinghorst, a London-based analyst for Evercore ISI.

“This latest saga may help catalyze further management changes at VW,” Ellinghorst wrote in a note today, according to Bloomberg.

Analysts at Kepler Cheuvreux cut their recommendation on Volkswagen stock to hold from buy, reducing their target price 27 percent to 185 euros. Volkswagen faces not only a short-term drop in sales and a hit to its reputation but also the longer-term risk of litigation in the U.S., the analysts wrote in a note on Monday.

The US charges are “grave” and must be clarified swiftly, said Stephan Weil, prime minister of the German state of Lower Saxony, which owns 20 percent of Volkswagen’s voting shares. “Possible consequences can be decided after that," he said.

The European Commission also said it’s taking VW’s cheating seriously and is in contact with U.S. regulators and the company about details of the case. German competitors BMW AG and Daimler AG said on Monday they aren’t aware of a similar US probe into their cars. Shares of both slipped the most in almost a month.

Diesel and VW’s reputation for German engineering were cornerstones of Winterkorn’s effort to catch up in the US market. The violations, which affect nearly half a million vehicles, could result in as much as $18bn in fines, based on the cost per violation and the number of cars. Criminal prosecution is also possible.

“If this ends up having been structural fraud, the top management in Wolfsburg may have to bear the consequences,” said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG.

Sales of VW-brand cars in the US dropped 10 percent last year to 366,970; the company aimed to almost double annual Audi and VW brand sales to 1m vehicles by 2018.

“VW’s U.S. sales target for 2018 had been ambitious as is,” said Klaus Breitenbach, a Frankfurt-based analyst for Baader Bank AG. “Now I believe it is no longer reachable.”