Those following the international business news will know by now that Volkswagen is currently making headlines for the wrong reasons.

US authorities accuse the company of using a so-called “cheat device” in some turbodiesel vehicles to deliberately circumvent clean air rules. This engine software automatically triggered when it was detected that the car was undergoing exhaust emissions testing. This, in turn,reportedly hid emissions levels that were up to 40 times higherthan what is legally allowed in the US. The emissions in question werereportedly NOx (nitrogen oxide) related. Volkswagen has been ordered to recall 482 000 vehicles in the United States and could face penalties of up to $18 billion in that country alone.

But now things have apparently taken a turn for the worse.

Up to 11 million cars affected worldwide

In a statement issued earlier this morning Volkswagen admits that the software could be present in up to 11 million vehicles worldwide. According toSky News, investigations have begun in other countries, including South Korea, Germany and… South Africa.

As this is still a developing story and Volkswagen in Germany is driving the action plan, Volkswagen South Africa is not currently in a position to comment, so it remains to be seen how a fairly large recall (if there is indeed a recall) would be handled and impact the local Volkswagen owners. The EA189 family of four-cylinder turbodiesel engines is widely used in a number of products.

Although there has been no official detail on how the software actually works, former technical editor of CAR Magazine, Jake Venter, suggests that it could be as simple as Volkswagen using two “maps” for the engine, one for emissions, and one for driveability, with the car switching between them as required. Usually manufacturers develop one “compromise” map. How will Volkswagen fix this? It may have to develop one such “compromise” map for these engines.

Although no other manufacturers are currently accused of anything similar, French Finance Minister Michel Sapin has called for an investigation into all European carmarkers, including French ones, following the Volkswagen revelations.

Volkswagen Diesel Scandal – The Official Statement

“Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines. New vehicles from the Volkswagen Group with EU 6 diesel engines currently available in the European Union comply with legal requirements and environmental standards. The software in question does not affect handling, consumption or emissions. This gives clarity to customers and dealers.

“Further internal investigations conducted to date have established that the relevant engine management software is also installed in other Volkswagen Group vehicles with diesel engines. For the majority of these engines the software does not have any effect.

“Discrepancies relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide. A noticeable deviation between bench test results and actual road use was established solely for this type of engine. Volkswagen is working intensely to eliminate these deviations through technical measures. The company is therefore in contact with the relevant authorities and the German Federal Motor Transport Authority (KBA – Kraftfahrtbundesamt).

“To cover the necessary service measures and other efforts to win back the trust of our customers, Volkswagen plans to set aside a provision of some 6.5 billion EUR (close to R100 billion) recognized in the profit and loss statement in the third quarter of the current fiscal year. Due to the ongoing investigations the amounts estimated may be subject to revaluation. Earnings targets for the Group for 2015 will be adjusted accordingly.

“Volkswagen does not tolerate any kind of violation of laws whatsoever. It is and remains the top priority of the Board of Management to win back lost trust and to avert damage to our customers. The Group will inform the public on the further progress of the investigations constantly and transparently.

Battles on all fronts

What will be the outcome for the leadership at Volkswagen? A high-level board meeting is reportedly scheduled for Friday and some German media is reporting that current CEO Martin Winterkorn will be replaced at that time, potentially by Porsche CEO Matthias Muller (This has been denied by Volkswagen). This follows a year of boardroom battles at Volkswagen, with Winterkorn ousting the legendary Ferdinand Piech earlier this year following major differences.

As reported recently in our article on Volkswagen’s next five years, the company is facing serious challenges in China and the United States and has embarked on an ambitious new model strategy that will fix most (if not all) the problems with its current model range (a lack of a sufficient number of SUVs/crossovers, and potentially a budget car family specifically for China).

Followingwidespread reports on the emissions scandalVolkswagen shares dropped 19% on Monday, and a further 20% on Tuesday.

We will keep you updated on this dramatic and developing story.