Prosecutors step up VW investigation as board holds crisis meeting

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German prosecutors launched an investigation Wednesday into Volkswagen over an emissions testing scandal as the embattled carmaker’s board held a crisis meeting that could decide the future of chief executive Martin Winterkorn.

VW shares rebounded strongly as five members of the presidium of the supervisory board met in the group’s headquarters in the northern German city of Wolfsburg to consider how to begin hauling the company out of the crisis.

Prosecutors in the nearby German city of Braunschweig said they had begun an investigation into VW following its weekend admission that it had installed sophisticated software in its diesel models aimed at beating US exhaust tests.

The US Justice Department is also reported to be conducting a criminal investigation into the emissions case with the German government having established a special commission to determine whether VW has broken any European or German rules.

German Transport Minister Alexander Dobrindt rejected claims that his department had prior knowledge of the revelations, which have rocked the country’s auto sector.

“Like everyone else, I have first read about it on the weekend in the newspaper,” Dobrindt said following a meeting of the German parliamentary transport committee.

A spokeswoman for the Economy Ministry said the government was confident that VW would fulfil its promise to conduct a comprehensive investigation into the scandal.

VW’s revelations have sent shockwaves across business in Europe’s biggest economy with industry leaders attempting to allay fears about the impact of the scandal on the nation’s cherished Made in Germany insignia, which it sees as a symbol of quality manufacturing and engineering prowess.

The head of the powerful Federation of German Industry (BDI), Ulrich Grillo criticized Volkswagen, but insisted that the affair would not have wider implications for German industry.

“‘Made in Germany’ stands for excellent products,” said Grillo, adding that German engineering and skilled work are respected all over the world.

But the BDI chief insisted that companies have to play by the rules.

“We condemn any kind of manipulation,” he said welcoming VW’s move for an independent inquiry. “Only transparency, openness and speedy proceedings can help us now.”

Echoing Grillo’s remarks, Matthias Wissmann, who heads the German Automobile Industry Association (VDA), sharply criticized Volkswagen.

“The abuse of special motor software – that should not really happen,” said Wissmann, whose association represents leading members of the German auto industry such as the world’s top premium carmaker BMW and Daimler, the manufacturer of luxury Mercedes Benz saloons.

The European Automobile Manufacturers Association (ACEA), however, insisted that the VW affair did not have Europe-wide consequences.

“In light of the latest emission testing news, ACEA recognizes the gravity of the situation and is taking this very seriously,” the Brussels-based association said in a statement.

“However, we cannot comment on an issue affecting one individual company,” it said. “There is no evidence that this is an industry-wide issue.”

VW said it had still not finalized details for the recall of vehicles affected by the scandal. This includes in the United States its Audi, VW Jetta, Beetle, Golf and Passat diesel models.

As the scale of the scandal emerged, VW issued a profits warning on Tuesday and revealed that emissions tests might have been manipulated for about 11 million cars worldwide.

Winterkorn has publicly apologized and vowed to clear up the affair as part of his efforts to hold onto his job.

Wednesday’s presidium meeting comes ahead of a meeting on Friday of the full 20-head supervisory board.

Before the scandal broke, the board, consisting of executives and shareholders’ representatives, had been expected to extend Winterkorn’s contract to 2018.

The revelations about cheating on exhaust tests sent VW shares into a tailspin this week wiping about 26 billion euros (29 billion dollars) off the value of the company in just two days, with the group saying it had set aside 6.5 billion euros in the third quarter to address costs.

However, after crashing during the first two days of the week, VW stock rose 8.4 per cent in late trading in Frankfurt on Tuesday.

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