The Golf is one of the vehicles affected by the EPA allegations over manipulated diesel emissions (Photo: VW)

Volkswagen Group said Tuesday that 11 million of its diesel-powered vehicles are equipped with the engine management software that is the subject of a US regulatory investigation.

The statement appeared to signal that a US investigation into whether VW intentionally manipulated emission-test results of its diesel cars in the US could become a much bigger and global issue. Citing internal investigations, VW said "for the majority of these engines the software does not have any effect."

The VW statement says: "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)."

Earlier, the US Environmental Protection Agency (EPA) said that four-cylinder Volkswagen and Audi diesel cars from model years 2009 to 2015 include software that circumvents its emissions standards for certain air pollutants. It cited the use of a so-called "defeat device," which  deploys a sophisticated software algorithm to detect  when a car is undergoing official emissions testing. The device then turns full emissions controls on for the duration of the test.

“Using a defeat device in cars to evade clean air standards is illegal and a threat to public health,”  Cynthia Giles, an EPA assistant administrator, said in a statement. The EPA said VW may be liable for civil penalties and injunctive relief.

The agency said the allegations cover about 482,000 VW and Audi diesel passenger cars sold in the US since 2008. Affected diesel models include:

”¢ VW Jetta (Model Years 2009 ”“ 2015)”¢ VW Beetle (Model Years 2009 ”“ 2015)”¢ Audi A3 (Model Years 2009 ”“ 2015)”¢ VW Golf (Model Years 2009 ”“ 2015)”¢ VW Passat (Model Years 2014-2015)

Because the US investigation could result in fines of as much as 18 billion dlrs, VW said Tuesday that is making a 6.5 billion euro provision in its third-quarter results to cover costs. Earnings targets for all of 2015 will be restated and VW warned that costs may end up higher than the provision it has now made.

Volkswagen CEO Martin Winterkorn said earlier this week that VW will be cooperating fully with authorities in the matter. He also ordered a separate investigation. "We do not and will not tolerate violations of any kind of our internal rules or of the law," Winterkorn said in a statement, adding that "I personally am deeply sorry that we have broken the trust of our customers and the public."

By Tuesday afternoon in Frankfurt, Volkswagen shares had dropped almost 40 pc on the Frankfurt Stock Exchange from their levels late Friday before the news broke. The decline was triggered by market worries that VW could face a big fine as well as huge costs for rebuilding its image in the US. Investors also expressed concern that the allegations could force a management change at the top of the carmaker group.

"No question that this is a big problem for Volkswagen and could lead to CEO Martin Winterkorn losing his job after all," Christian Stadler, a strategic management professor at the Warwick Business School in the UK, said in a statement.

Earlier this year, Winterkorn won a dispute with former VW Group Chairman Ferdinand Piech, who tried to oust the veteran VW executive as CEO. Until the diesel news broke, Winterkorn's contract was set to be extended to 2018 in a supervisory board meeting scheduled for this Friday.

"After this, a question mark now hangs over that decision," Stadler said. "Maybe they will defer the decision to wait and see what happens."

-By Arjen Bongard