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Thursday, December 8, 2016

By Andreas Cremer

WOLFSBURG, Germany (Reuters) — Volkswagen rigged emission tests on about 2.8 million diesel vehicles in Germany, the country’s transport minister said on Friday, nearly six times as many as it has admitted to falsifying in the United States.

His comments, pointing to cheating on a bigger scale than previously thought, deepened the crisis at the world’s largest automaker as its supervisory board held a crucial meeting.

The board is widely expected to name Matthias Mueller, the head of its Porsche sports-car division, as chief executive to replace Martin Winterkorn, who quit on Wednesday, and at least four senior executives are expected to be purged.

Shares in the German company, which had started to steady after sharp falls earlier this week, were down 4.5 percent at 1335 GMT after Bloomberg also reported that executives in Germany controlled aspects of the manipulated U.S. tests, citing three people familiar with the U.S. business.

Volkswagen is under heavy pressure to show it can get to grips with the biggest business-related scandal in its 78-year history.

Mueller, 62, would represent part of the fresh start that Winterkorn said was needed when he stepped down.

The board will also dismiss the head of its U.S. business, the top engineers of its luxury Audi and Porsche brands and the head of brand development at its VW division, sources added, aiming to show it is acting decisively to end the crisis.

Volkswagen shares have plunged as much as 40 percent, wiping tens of billions of euros off its market value, since U.S. regulators said last Friday it had admitted to programming diesel cars to detect when they were being tested and alter the running of their engines to conceal their true emissions.

The scandal keeps growing. German transport minister Alexander Dobrindt said on Thursday Volkswagen had also cheated tests in Europe, where its sales are much higher, and on Friday put the number of affected vehicles in Germany at 2.8 million.

Regulators and prosecutors across the world are investigating the scandal.

The wider car market has been rocked, with manufacturers fearing a drop in sales of diesel cars and tighter regulations, while customers and motor dealers are furious that Volkswagen has yet to say whether it will have to recall any cars.

“VW needs to be very open about what has happened, how it was possible that this could happen to make sure that this never happens again in the future,” said a leading Volkswagen shareholder, underlining the importance of the board meeting.

“These are priorities that should override all other considerations at the moment.”

The task facing Mueller, if his selection is confirmed, is huge. The company said on Tuesday 11 million vehicles worldwide were fitted with the software that allowed it to cheat U.S. tests, while adding it was not turned on in the bulk of them.

Analysts hope that on Friday it may at last say which models and construction years are affected, and whether cars will need to be refitted.

They also expect it to announce a full investigation of the scandal, with German newspaper Handelsblatt saying it planned to hire U.S. law firm Jones Day to lead a no holds barred inquiry, and to give the outlines of a new management structure likely to be less centralized, but with a clearer system of checks.

TOUGH TIMES AHEAD

Volkswagen has long been seen as a symbol of German industrial prowess and the auto industry is one of the country’s major employers and a key source of export revenue.

Earlier this month, Volkswagen delivered a presentation to investors at the annual Frankfurt motor show entitled “Stability in Volatile Times”. Now Chancellor Angela Merkel is urging it to act quickly to restore confidence in the Volkswagen name.

Frank Schellenberg, a taxi driver in Wolfsburg where the carmaker employs around 70,000 people, said locals felt betrayed and feared the worst.

“They have lost any contact with the real world, the customers who have been buying their cars in good faith,” he said, pointing to the firm’s 13-storey administrative building. “Everyone in Wolfsburg is expecting tough times and job cuts.”

Half a dozen Greenpeace protesters were outside Volkswagen’s Wolfsburg plant on Friday, ‎waving banners saying “No more lies!” in front of three diesel-engine VW Golf hatchbacks.

Evercore ISI analyst Arndt Ellinghorst said he would welcome the appointment of Mueller, a former head of product strategy and close to the Piech-Porsche family that controls Volkswagen.

But Bernstein’s Max Warburton questioned whether a man who has spent more than three decades at the company was the right man to signal a break with the past. He favors Herbert Diess, a former research and development chief of rival BMW who was hired to run the VW brand in December.

“VW needs to think big and bold,” Warburton said, urging the new CEO to offer to buy back and scrap almost 500,000 diesel cars sold in the United States, which would cost about $6 billion, as well as suspend the 100 engineers most closely associated with the affected engines and software.

Another top Volkswagen shareholder said it would have been better for Winterkorn to sort out the crisis before handing over to a successor, pointing to how oil company BP managed its recovery from the 2010 Gulf of Mexico oil spill.

“I would have preferred Winterkorn to have stuck around for another month or so, through the worst of the storm, then the company appoint another CEO.”

Environmentalists have long complained that carmakers game the vehicle testing regime to exaggerate the fuel-efficiency and emissions readings of their vehicles.

The International Council on Clean Transportation, one of the research groups that helped uncover Volkswagen’s deception, has published new data showing carbon dioxide emissions in European road tests were on average 40 percent higher than the laboratory results advertised in car sales literature.

European politicians on Wednesday voted to speed up a tightening of testing rules.

(Additional reporting by Reuters bureaus in Europe, Asia and Americas; Writing by Mark Potter; Editing by Timothy Heritage)

Photo: The logo of German carmaker Volkswagen is seen on the front grill of a Passat car in Willmette, Illinois, September 24, 2015. REUTERS/Jim Young