"INVESTOR'S NIGHTMARE"

Environmentalists have long complained that carmakers game the testing regime to exaggerate the fuel-efficiency and emissions readings of their vehicles. European politicians on Wednesday voted to speed up rules to tighten compliance with pollution limits on cars.

European car association ACEA said that so far there was "no evidence that this is an industry-wide issue".

But Societe Generale analysts said that while the uncertainty prevailed, the whole autos sector was likely to be "dead money" for a while.

As for Volkswagen, Deutsche Bank called the scandal an "investor's nightmare" and cut its recommendation to "hold" from "buy", predicting rising costs for making diesel cars would wipe out the company's cost-cutting programme.

A precipitous two-day collapse in the company's share price appeared to have ended on Wednesday morning, at least for now. At 1215 GMT, Volkswagen shares were up 3.9 percent at 110.15 euros, after earlier touching a four year low of 95.51 euros.

Volkswagen was challenged by authorities as far back as 2014 over tests showing emissions exceeded California state and US federal limits, but held off admitting wrongdoing until regulators threatened to withhold certification for its 2016 diesel models.

Winterkorn is likely to come under pressure from the board over the time it took the company to respond to criticism.

In April this year, the CEO saw off a challenge to his leadership when the board ousted long-time chairman Ferdinand Piech.

There was no sign emissions testing was part of Piech's criticism of Winterkorn, but insiders say Piech was unhappy with Volkswagen's underperformance in the United States, where sales of VW-brand cars fell 10 percent last year to less than half of their 2018 target of 800,000 deliveries.

Volkswagen is strong in the small US diesel sector and has spent millions on television ads promoting its "clean" diesel cars, central to its strategy to finally improve performance there after years of disappointment.

Winterkorn has long been accused by critics of an excessively centralised and hands-on management style, which they say has led to production delays and hindered the company's ability to adapt to local market needs.

In 2012, the launch of the Lamborghini brand's Aventador was delayed by about six months after the CEO requested a different dashboard following a test drive, one company source said.