Pressure builds on Volkswagen CEO as emissions-cheating probe spreads

By Andreas Cremer

FRANKFURT (Reuters) - The scandal engulfing Volkswagen, which has admitted cheating diesel vehicle emissions tests in the United States, spread on Tuesday as South Korea said it would conduct its own investigation and a French minister called for an EU-wide probe.

The German carmaker's shares fell to a new three-year low in early trade, extending Monday's 19 percent plunge after it admitted to using software that deceived U.S. regulators measuring toxic emissions.

Europe's biggest automaker could face penalties of up to $18 billion in the United States, as well as class-action lawsuits from buyers and damage to its reputation, with U.S. regulators alleging it misled them for more than a year.

VW, which for several years has been airing U.S. TV commercials lauding its "clean diesel" cars, was challenged by authorities as far back as 2014 over tests showing emissions exceeded California state and U.S. federal limits.

VW attributed the excess emissions to "various technical issues" and "unexpected" real-world conditions.

It wasn't until the Environmental Protection Agency and the California Air Resources Board threatened to withhold certification for the automaker's 2016 diesel models that VW in early September revised its explanation.

A committee of Volkswagen's supervisory board is due to meet on Wednesday to discuss the crisis. The full board is due to meet on Friday to extend Chief Executive Martin Winterkorn's contract until end-2018.

"I am sure that there will be personnel consequences in the end, there is no question about it," supervisory board member Olaf Lies told German radio station Deutschlandfunk on Tuesday.

Some analysts suggest Winterkorn, who recently saw off a challenge to his leadership with the ousting of long-time chairman Ferdinand Piech, will have to go.

Winterkorn oversees group R&D operations and ran the core Volkswagen brand between 2007 and 2015, including the period when some of its cars were found violating U.S. clean air rules.

"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."

Analysts had been hoping Winterkorn's victory in his power struggle with Piech would allow him to focus on tackling the carmaker's long-running underperformance in North America as well as sharply slowing demand in its main profit centre, China.

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The U.S. Environmental Protection Agency (EPA) said on Monday it would widen its investigation to other automakers. Media reports say the U.S. Department of Justice has also started a criminal probe into the allegations against Volkswagen, which cover VW and Audi-branded diesel models including the Audi A3, VW Jetta, Beetle, Golf and Passat.

French Finance Minister Michel Sapin said on Tuesday a broad European Union-level inquiry was needed too.

"It has to be done at a European level," he told Europe 1 radio. "We are a European market with European rules. It is these that have to be respected. It is these that have been violated in the United States."

There have been no suggestions so far that other carmakers have engaged in the same practices as Volkswagen. German rivals BMW and Daimler have said the accusations against Volkswagen did not apply to them.

The way carmakers test vehicles has been coming under growing scrutiny from regulators worldwide amid complaints from environmental groups that they use loopholes in the rules to exaggerate fuel-saving and emissions results.

At 0845 GMT, Volkswagen shares were down 6.3 percent at 123.85 after touching a low of 123.4 euros. The European auto sector index was down 4 percent, as analysts speculated all carmakers could face more stringent tests from regulators.

The South Korean probe into Volkswagen will involve 4,000 to 5,000 Jetta, Golf and Audi A3 vehicles produced in 2014 and 2015, Park Pan-kyu, a deputy director at South Korea's environment ministry, told Reuters.

The ministry will consider recalling those vehicles after conducting the investigation, he said.

"If South Korean authorities find problems in the VW diesel cars, the probe could be expanded to all German diesel cars," he added.

Volkswagen Korea declined to comment.

The Swiss Federal Roads Office said it was also investigating whether the same type of Volkswagen diesel cars that were sold in the United States were also sold in Switzerland, adding results were due in days.

(Additional reporting by Sohee Kim in Seoul, Jeffrey Dastinm, Darren Ormitz, Byron Kaye, Yann Le Guernigou and John Miller; Writing by Will Waterman and Mark Potter; Editing by Sonya Hepinstall and Janet McBride)