European prosecutors broaden investigations into Volkswagen

European prosecutors tightened the screw on Volkswagen on Tuesday as the fallout from the emissions scandal spread.

As France announced it had opened a formal probe into "aggravated fraud" at Europe's largest carmaker by sales, German prosecutors said they had more than doubled the number of VW employees under investigation.

The developments came after Matthias Mueller, VW's chief executive, warned staff that the German company would suffer "substantial and painful" damage to its reputation and finances from the emissions affair. VW's shares closed down 4 per cent at €112.30 on Tuesday.

Analysts have estimated the emissions scandal could cost VW as much as $50 billion in fines, lawsuits and other expenses. The company admitted last September that up to 11m diesel vehicles worldwide were fitted with software-based defeat devices that served to understate emissions of harmful nitrogen oxides in official tests.

French authorities opened an investigation into VW on February 19 following a preliminary inquiry in October last year that found evidence of cheating, according to a spokesman for the Paris prosecutor’s office.

After US regulators revealed VW’s wrongdoing on September 18, the French government set up a commission the following month to test emissions on 100 cars in France from a range of domestic and international carmakers.

In January it said initial results showed that VW cars were using software to cheat during tests.

Nathalie Homobono, head of France's Le Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes, an agency that tackles fraud, said on Monday it had been established that Volkswagen cheated "with intent".

Separately, German prosecutors said they had widened their inquiries to 17 VW employees, having previously investigated six workers.

None are from the company's management board, said Klaus Ziehe, one of the prosecutors.

It is unclear whether any of the 10 senior managers who were previously suspended by the company are now being investigated by the prosecutors.

VW said its French unit had so far “received no information or official confirmation about the judicial probe of Paris prosecutors” but stressed it would “continue to co-operate openly and fully with the relevant authorities in France”. VW declined to comment on the German prosecutors’ investigation.

Meanwhile, Mr Mueller told 20,000 staff at VW's headquarters in Wolfsburg that it would take years for the full scale of the damage stemming from the emissions scandal to become apparent.

The German carmaker is engulfed in the worst scandal in its 78-year history after it admitted to manipulating emissions test data on its diesel vehicles

The company has already set aside €6.7 billion to cover the cost of recalling the millions of vehicles that have defeat devices and require remedial action.

Analysts’ estimates of the final cost of the scandal to VW vary markedly, from $5 billion to $50 billion.

As well as recall expenses, VW is contending with lawsuits. In January, the US Department of Justice filed a civil suit against the carmaker seeking at least $45 billion in penalties.

Last month lawyers in the US filed a proposed class-action lawsuit to consolidate hundreds of cases. The first case in Germany, filed by a professor demanding VW buy back his car, began last week.

Allianz Global Investors, a VW shareholder, is expected to launch a suit by Monday next week.

Allianz indicated it was weighing a suit, saying: “As an active investment manager, it is our fiduciary obligation to evaluate potential claims against capital market participants and, if necessary, follow through in the best interest of our investors.”

- Copyright The Financial Times Limited 2016