Volkswagen has been ordered by the US Environmental Protection Agency (EPA) to recall half a million cars because of a device that disguises pollution levels.
The “defeat device” allows cars to pass lab testing even though they actually emit 40 times the emissions standard.
The EPA has been taking a more aggressive stance on car pollution and violations of the Clean Air Act.
The recall could cost Volkswagen up to $18 billion.
It affects 2009-2014 Jettas, Beetles, Audi A3s and Golfs and 2014-2015 Passats.
“Using a defeat device in cars to evade clean air standards is illegal and a threat to public health,” said Cynthia Giles, assistant administrator for the Office of Enforcement and Compliance Assurance.
The illegal system allowed cars to detect when they were undergoing smog emission test and lowered the rate of pollution. Those emission controls were then turned off during ordinary use.
The state of California which assisted in the investigation has also issued a notice of violation to Volkswagen.
In 2014 the EPA fined Hyundai Motor and Kia Motors $300 million for misrepresenting the fuel economy in 1.2 million of their cars. That settlement is the highest to date.
German carmaker Daimler is selling its remaining 7.5% stake in pan-European aerospace and defence group EADS.
Daimler, owner of Mercedes-Benz, said it would use to the funds to focus on its main carmaking business.
Daimler is selling its remaining 7.5 percent stake in EADS
The shareholding in EADS is worth about 2.3 billion euros ($3 billion) as of the end of Tuesday trading.
EADS is the parent company of aircraft manufacturer Airbus. EADS said it would buy about 600 million euros worth of the shares.
Daimler also sold a 7.5% stake in EADS last year.
Volkswagen has decided to recall 384,181 cars in China to replace a part of their gearboxes, its largest recall in the country to date.
Last week, Chinese state television showed Volkswagen consumers reporting sudden acceleration and loss of power.
Volkswagen said the direct-shift gearboxes could cause a power interruption, but drivers could remain in control and stop.
China is the biggest market for Volkswagen.
Volkswagen has decided to recall 384,181 cars in China to replace a part of their gearboxes
The recall, which starts on April 2, includes the Passat, Bora, Touran and Golf models amongst others, the company confirmed.
Volkswagen currently has two production joint ventures with China’s SAIC Motor and FAW Group.
The German carmaker sold 2.8 million cars in China in 2012, and said it planned to increase production to 4 million vehicles in the country in the next 5 years.
German carmaker Volkswagen says its group sales hit a record high last year despite slowing sales in Western Europe.
Volkswagen sold 9.07 million cars last year, up 11% from 2011.
Sales in North America and Asia-Pacific rose 26.2% and 23.3% respectively, helping to offset a 6.5% drop in sales in Western Europe, excluding Germany where sales were up 1.9%.
Volkswagen said it was optimistic for this year despite the economic problems in the eurozone.
“Tough challenges lie ahead. The Volkswagen Group has everything it takes to face these challenges and to play a leading role on world markets,” said Volkswagen chairman Dr. Martin Winterkorn.
However, sales at Volkswagen are still expected to lag those at rival Toyota, which has forecast a 22% jump in sales last year to 9.7 million vehicles.
German carmaker Volkswagen says its group sales hit a record high last year despite slowing sales in Western Europe
Toyota has not yet released its official global sales figures for 2012.
At Volkswagen, its passenger cars remained the most popular, recording sales of 5.7 million last year.
Sales of sports car Porsche, which Volkswagen took over last August, were 59,500 between August and December.
The economic turmoil in the eurozone, which has seen several countries including Greece, Portugal and the Republic of Ireland need international financial help, has hurt car sales in the region.
Last week, Peugeot Citroen reported worldwide sales down 16.5% for 2012, which it blamed on “the crisis affecting the European automobile market”.
Meanwhile, Honda revealed plans to cut 800 jobs at its Swindon plant which it also blamed on weak demand in European markets.