Detroit (TheStreet) -- Sanctions by the U.S. Environmental Protection Agency may be just the beginning of Volkswagen's (VLKAY legal and financial troubles in connection with what appears a deliberate evasion of federal clean-air laws.
Recent criminal prosecutions of General Motors (GM - Get Report) and Toyota Motor (TM - Get Report) suggest that an activist U.S. Department of Justice may decide to open an investigation into whether other federal laws were violated. Last week, GM agreed to pay $900 million to settle federal wire fraud charges that it had concealed potentially deadly safety defects in ignition switches.
On Friday, the Obama administration accused VW of deceiving EPA regulators about the level of toxic emissions in nearly half a million diesel VWs and Audis sold in the U.S. since 2008. The automaker, based in Wolfsburg, Germany, evidently rigged software on emissions controls to operate the engine in one way during tests and differently when driven by owners.
A VW spokeswoman, Jeannine Ginivan, said Saturday that the automaker is cooperating with the investigation.
"Given the nature of what VW is being accused of I would expect that criminal charges are almost certainly forthcoming. If true, there is no way this can be passed off as a procedural mistake as was the case with the fuel economy problems at Hyundai and Ford. This appears to be very deliberate if true," said Sam Abuelsamid, a senior analyst with Navigant.
Last year, Ford Motor (F - Get Report) was forced to restate fuel-economy ratings for some of its vehicles and send refunds of $200 to $1,050 to about 200,000 customers. In 2012, Hyundai Motor (HYMLF and its Kia Motors (KIMTF affiliate had to relabel fuel-economy ratings some models sold in the U.S.
The U.S. will order a recall of the affected vehicles, which may receive new software that improves emissions while reducing power and fuel economy. Under EPA rules, VW could be subject to as much as $18 billion in fines -- a stunning sum that, if levied, could stagger the automaker financially in the short term.
On Friday, VW shares and ADRs fell up to 5% in heavy trading on news of the EPA charges.
For VW, whose announced goal is to surpass Toyota as the world's No. 1 automaker, the dust-up with the EPA is the latest in a series of setbacks. In April, a published comment about Martin Winterkorn, chief executive officer, by then chairman Ferdinand Piech in a German magazine ignited a shakeup in senior management and Piech's exit from VW's supervisory board. Piech remains a major VW shareholder.
Last year, VW workers in Chattanooga, Tennessee narrowly voted down representation by the United Auto Workers union. The election created an uproar among politicians and business groups in the state, who suspected VW might be pushing unionization to mollify pro-union advocates in Germany.
The German automaker, while dominant in Europe and China, has struggled in the U.S. market, where it lacks crossovers and SUVs at a time when such models are extremely popular. And in August, an arbitration panel in London cleared the way for Suzuki Motor (SZKMY to force the sale of VW's 19.9% share of the Japanese automaker, reflecting the failure of the affiliation.