Volkswagen Group Forum DRIVE opens in Berlin. Opening event. Dr. Martin Winterkorn CEO VW Group, near the  stage  before the opening ceremony.  Berlin. Germany. 28.14.2015. Photo: Krisztian Bocsi
Cough, cough, splutter, splutter...and that's just the engine. Photograph by Krisztian Bocsi — Bloomberg/Getty Images

VW and its CEO face a world of hurt over faked emission testing

Sep 20, 2015

Martin Winterkorn, Volkswagen's CEO, issued an apology on Sunday, saying he is “deeply sorry” about his company installing technology in U.S. cars so they would falsely pass emissions exams. The automaker will do “everything necessary in order to reverse the damage this has caused,” he said. “This matter has first priority for me, personally.”

VW is facing billions of dollars in fines from U.S. regulators and a crisis of trust in top management following charges that it faked pollution testing on its diesel-powered Audi and VW cars since 2009.

The Environmental Protection Agency on Friday accused VW of deliberately rigging pollution tests of diesel engines. Although U.S. prosecutors have said nothing about criminal charges, they may be likely considering recent actions against Toyota and General Motors in the wake of allegations that they improperly handled safety defects.

VW said it is cooperating with investigators and will conduct a probe of its own using outside specialists.

Winterkorn may be standing on shaky ground as the automaker’s supervisory board—the equivalent of board of directors in the U.S.— prepares to meet to discuss extending his contract. In April, he survived a signal of no confidence from Ferdinand Piech, VW's then-chairman, who has since resigned. But Piech still owns about 10% of VW’s common shares and wields tremendous influence.

Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisberg-Essen, told Bloomberg that because Winterkorn ultimately is responsible for new-vehicle development, he must have known about the deception or was unaware of what was happening under him. “For every politician in the world that would be grounds for resignation,” Dudenhoeffer said.

Under U.S. EPA rules, each one of the 482,000 four-cylinder diesel VW and Audi models improperly tested since 2009 would be subject to $37,500 in fines – meaning a potential penalty of up to $18 billion. While it’s hard to imagine the levying of such a penalty, even a fraction would hit VW hard.

Last week, U.S. regulators fined a $900 million fine against GM (gm) related to wire fraud charges in connection with defective ignition switches that regulators said the company knew about and failed to disclose. Meanwhile, Toyota (tm) paid $1.2 billion last year following accusations that it mishandled reports about unintended acceleration.

Furthermore, VW risks losing out on sales. It has told its U.S. dealers to stop selling the diesel models that have the emissions software in question.

How VW’s behavior will affect consumers in the U.S. isn’t immediately clear. The automaker, despite highly rated vehicles and a dominant position in Europe and China, has struggled in the U.S., the world’s most profitable market. Winterkorn’s inability to increase VW’s market share in the U.S. commensurate with its global profile was cited as a reason for Piech’s lack of confidence in him.

For more about auto industry settlements with U.S. regulators, watch this Fortune video:

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