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The Environmental Protection Agency (EPA) found that software in several diesel cars could deceive regulators.
The German carmaker was ordered to recall half a million cars on Friday.
In addition to paying for the recall, VW faces fines that could add up to billions of dollars. There may also be criminal charges for VW executives.
According to German newspaper Bild, the German government has ordered an “extensive” examination of VW’s diesel cars.
Volkswagen’s chief executive apologised after the scandal emerged.
“I personally am deeply sorry that we have broken the trust of our customers and the public,” Martin Winterkorn said.
He has launched an investigation into the software that allowed VW cars to emit less during tests than they would while driving normally.
The EPA found the “defeat device” in diesel cars including the Audi A3, VW Jetta, Beetle, Golf and Passat models.
VW has stopped selling the relevant diesel models in the US, where diesel cars account for about a quarter of sales.
The EPA said that the fine for each vehicle that did not comply with federal clean air rules would be up to $37,500 (£24,000). With 482,000 cars sold since 2008 involved in the allegations, it means the fines could reach $18bn.
That would be a considerable amount, even for the company that recently overtook Toyota to be the world’s top-selling vehicle maker in the first six months of the year. Its stock market value is about €66bn ($75bn; £48bn).
Analysis: Richard Westcott, Transport Correspondent
VW is accused of using a clever piece of software that can tell the car’s computer when it is being tested for emissions.
Apparently, tests are predictable and the computer can work it out. The car then temporarily switches on a system to cut emissions, making the engine as much as 40 times cleaner, according the regulator.
So why did VW cheat? The benefits are complicated and vary depending on the car, but I am told that switching the emissions controls off can potentially increase fuel efficiency, and save the driver from having to maintain the system by topping it up with a chemical.
Environmental groups have long complained that what comes out of the tailpipe of a diesel driving on a real road, often doesn’t seem to resemble the lab tests.
There is no suggestion that other car makers are also cheating.
In fact, the Society of Motor Manufacturers and Traders stresses: “The EU operates a fundamentally different system to the US – with all European tests performed in strict conditions as required by EU law and witnessed by a government-appointed independent approval agency.”
Still, the American regulator now says it’ll start testing other diesels. And the German government also says it’ll check whether it’s happening in Europe.