Eight million Volkswagen diesel cars sold in the European Union have been fitted with the ‘defeat device’ designed to cheat in emission tests, the German car-maker has admitted.
The existence of the so-called defeat device, used by Volkswagen to manipulate emission testing results, was uncovered by American regulators two weeks ago.
The German Ministry of Transport hinted that the technology has also been used to cheat in European emission tests, but did not provide specific details.
As the majority of the affected vehicles have been sold in Europe, any cheating would have a bigger impact in the EU than it has had in the US. According to a letter published by German newspaper Handelsblatt, the vehicles affected are those with 1.2, 1.6 and 2.0-litre diesel engines manufactured after 2008.
"We need clarity on Europe," said Max Wurburton, analyst at Bernstein. "If the issue is just limited to the US, then the financial consequences may be containable. But if VW also cheated in Europe, then the situation will become much graver."
The car-maker is facing a deadline on Tuesday to provide Germany's Federal Motor Transport Authority KBA with a plan on how it wants to ensure its cars are compliant with binding emission laws. Later this week, the firm’s US executive will testify before a US congressional oversight panel.
In the short time since the start of the affair - already the biggest scandal in Volkswagen’s 78-year history - the firm has failed to determine who was responsible for the development and installation of the cheating software.
Although ten senior managers have been suspended, including three top lead engineers, the firm has failed to find evidence of any wrongdoing on their side, according to Reuters.
Reuters said two sources familiar with the situation stated that internal investigations carried out by Volkswagen found engineers began installing the technology to trick diesel emission tests in 2008 after it was discovered that a new engine would fail to meet both US emissions standards and in-house cost targets.
The three engineering heads suspended have been named as Heinz-Jakob Neusser (head of technical development at the core VW brand), Ulrich Hackenberg (head of research and development at premium brand Audi) and Wolfgang Hatz (the VW group's engine chief and head of R&D at sports-car brand Porsche).
Volkswagen has said the investigation may take several months.
The defeat device was used to turn on emission-eliminating technologies in cars equipped with the 189 EU5 diesel engines just for the time of the testing. Continuous operation of these technologies has been found to increase fuel consumption and affect performance.
Volkswagen’s new CEO Matthias Mueller told staff on Tuesday to be prepared for ‘massive cutbacks’. Shares in Volkswagen Group have lost over a third of their value in the wake of the revelations by the US Environmental Protection Agency.
Speaking to employees at Volkswagen’s headquarters in Wolfsburg, Mueller - who replaced long-serving, outgoing CEO Martin Winterkorn who quit late last month over the scandal - said all the company's investment plans would be put under review and an existing cost-cutting programme accelerated. “This will not be painless," he warned.
It has been the first suggestion the scandal could lead to job cuts in the company that employs almost 60,000 people in its main factory in Wolfsburg.
"We need to make massive cutbacks in order to manage the consequences of the crisis," Mueller said.
"Technical solutions to the problems are within view. However, the business and financial consequences are not yet clear."