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WOLFSBURG, Germany—Two top Volkswagen engineers who found they couldn’t deliver as promised a clean diesel engine for the U.S. market are at the center of a company probe into the installation of engine software designed to fool regulators, according to people familiar with the matter. The two men, Ulrich Hackenberg, Audi ’s chief engineer, and Wolfgang Hatz, developer of Porsche’s winning Formula One engines, were among the engineers suspended in the investigation of the emissions cheating scandal that sank the company’s market value by 43% since Sept. 18 and triggered a world-wide recall to refit the engines to meet clear-air...

Shares in Volkswagen (VLKAF) crashed 20% Monday, wiping 16 billion euros ($18 billion) off the company's value after it was found to have misled U.S. regulators. Federal and state regulators said Friday that the German company cheated on environmental standards by programming some diesel-fueled cars to turn on emission controls only when being tested. Volkswagen, recently crowned the world's biggest carmaker by sales, also owns the Audi and Porsche brands. The software is installed in nearly 500,000 cars on U.S. roads, including some of its luxury-brand Audi cars. Regulators have ordered Volkswagen to recall the vehicles. The company said it...

The Obama administration on Friday directed Volkswagen to recall nearly a half-million cars, saying the automaker illegally installed software in its diesel-power cars to evade standards for reducing smog. The Environmental Protection Agency accused the German automaker of using software to detect when the car is undergoing its periodic state emissions testing. Only during such tests are the cars’ full emissions control systems turned on. During normal driving situations, the controls are turned off, allowing the cars to spew as much as 40 times as much pollution as allowed under the Clean Air Act, the E.P.A. said. “We expected better...

The U.S. Environmental Protection Agency and California officials say some 482,000 Volkswagen and Audi diesels were engineered to falsify their emissions for federal tests—a violation that opens the German automaker to a theoretical fine totaling $18 billion. The EPA and California Air Resources Board say the affected models had software in its computer engine controls that could sense exactly when it was being tested for emissions quality. At all other times, it would run the diesels in a different mode with illegal levels of pollution; for example, spewing up to 40 times more nitrogen oxide, a key component of smog,...

Germany’s VW AG has a mixed situation in the US – on one hand its luxury stablemate Audi is thriving and posting record sales each month, while on the other hand the mass-market brand is suffering. The company is a powerhouse in Europe, where it’s the largest automaker and thanks to China has also achieved the status of the second biggest carmaker in the world. Among the issues lie the fact that in the US the mass-market car brand VW has been sliding while the rest of the market is going up and the fact that Audi is indeed posting...