Family-controlled carmaker Volkswagen has admitted it deliberately tampered with thousands of its cars' emission testing software to deceive US environmental authorities.
It faces an initial fine of $18 billion for the 11 million cars affected, equivalent to its net annual profits, but if further investigations find the rigging is more widespread this could rise.
The German carmaker posted revenues of €197 billion in 2013.
Controlled by the third-generation of the Piech family, Volkswagen has denied leaked reports that its non-family CEO will resign due to the controversy. Shares have dropped 20% in the family-controlled business off the back of the news.
It comes less than six months after Volkswagen chairman Ferdinand Piech stepped down after a secret plot to oust chief executive officer Martin Winterkorn. The Piech family owns 51% of VW.
The models implicated include the Beetle, Golf, Passat and Jetta, as well as the Audi A3.
A highly sophisticated algorithm detected when the car was undergoing official emissions testing, and adjusted emission control devices accordingly so that the vehicles could meet standards set by the Environmental Protection Agency (EPA).
In a statement, the agency said testing conditions therefore did not match the normal driving conditions of the cars, which were releasing up to 40 times the amount of nitrogen oxides allowed under US legal limits.
The pollutants are linked to asthma attacks, respiratory illnesses, and cardiovascular problems, with the elderly, children and people with pre-existing respiratory problems particularly at risk.
“Using a defeat device in cars to evade clean air standards is illegal and a threat to public health,” said Cynthia Giles, assistant administrator for the Office of Enforcement and Compliance Assurance at the EPA.
The admission has sent shockwaves through the auto industry, with many seeing companies seeing their shares drop.
Environmental responsibility is increasingly playing an important role in reputational management. Last week, family-controlled public relations firm Edelman announced it would no longer work with coal producers and climate change deniers.