Volkswagen head faces grilling by board over diesel scandal

Volkswagen CEO Martin Winterkorn faced a reckoning with his board on Wednesday, summoned to explain how the company falsified US emissions tests in the biggest scandal in the 78-year history of the world's largest car maker.

Senior figures on the board's five-member executive committee grilled Winterkorn on Wednesday at the meeting at the company's headquarters in Wolfsburg, Germany.

Martin Winterkorn is due to have his contract extended at the end of this week and has so far shown no sign of resigning over the affair, after pledging “utmost transparency” in ongoing investigations. The board must decide by Friday whether to extend the 68-year-old executive's contract.

A source familiar with the deliberations said the board was in a “tricky situation”, trying to make a decision without yet knowing the full extent of the CEO's role in the scandal.

A story in the Tagesspiegel newspaper, denied by Volkswagen, said the board would replace him with Matthias Mueller, head of the automaker's Porsche sports car business.

Winterkorn did not mention his future in a video message posted on the company's website in which he repeated his apology for the scandal, which has wiped out tens of billions of dollars from the company's value.

The US Environmental Protection Agency (EPA) says Volkswagen could face penalties of up to USD 18 billion for cheating emissions tests.

The company said it would set aside 6.5 billion euros (USD 7.3 billion) in its third-quarter accounts to help cover the costs.

The US Justice Department has launched a criminal probe, a source familiar with the matter said. New York and other state attorneys general are also forming a group to investigate, New York Attorney General Eric Schneiderman said.

“No company should be allowed to evade our environmental laws or promise consumers a fake bill of goods," Schneiderman said in a statement.

Other countries in Europe and Asia have said they will also launch investigations into Volkswagens and other vehicles.

The crisis has sent shockwaves through Germany, with Chancellor Angela Merkel calling for "complete transparency" from a company seen for generations as a paragon of engineering excellence.

Some analysts expect Winterkorn to go, whether he knew about the wrongdoing or not.

"Winterkorn either knew of proceedings in the US or it was not reported to him," Evercore ISI analyst Arndt Ellinghorst said. "In the first instance, he must step down immediately. In the second, one needs to ask why such a far-reaching violation was not reported to the top, and then things will get tough, too."

Volkswagen shares lost more than a third of their value in the first two days of trading since the scandal broke. Shares held steady in early trading on Wednesday, fluctuating near Tuesday's close of 106 euros.

JP Morgan analysts said they still saw value in the stock long term, cutting their rating to neutral from overweight and their target to 179 euros from 253.