Volkswagen shares tumble again after company admits understating fuel consumption

Investors wiped another 3billion euros off Volkswagen's market value onWednesday after it said it had understated the fuel consumptionof some cars, opening a new front in a scandal that initiallycentred on rigging emissions tests.

The carmaker said late on Tuesday it had understated thefuel usage of up to 800,000 cars in Europe, meaning those
vehicles affected are more costly to drive than their buyers hadbeen led to believe.

The widening scandal also prompted Moody's Investors Service to cut the rating on the Volkswagen's debt, which could make borrowing money more expensive for the company. The agency cited "mounting risks to Volkswagen's reputation and future earnings" from this week's new developments.

The revelations - which added a new dimension on Wednesdayto a crisis that had previously focused on environmental damage- are the first to threaten to make a serious dent inVW'scarsales since the scandal erupted, analysts said.

They could potentially deter cost-conscious consumers whohave so far taken VW's manipulation of smog-causing emissiontests in their stride.

• Volkswagen finds new CO2 problems on 800,000 vehicles
• New Audi, Porsche, VW models found to have cheat device
• Volkswagen testing 2nd engine for emissions-cheating software
• Volkswagen 'clean diesel' ads face U.S. probe

The effects of the scandal have so far been barely reflectedin VW sales figures - although it was the only German carmakerto report a decline in car registrations in Germany in October.

Preferred shares in Europe's biggest carmaker were down 9.5 per cent at100.45eurosin Europe.

"Another week, another shock in the VW story," Exane BNPParibas analyst Stuart Pearson wrote in a note. "We add another4 billion euros ($5.7 billion Cdn) in recall costs and fear a harsher commercialimpact," said Pearson, who rates VW "neutral".

The German carmaker also revealed on Tuesday thatcarbon-dioxide emissions had been understated - leading it to
underestimate the fuel consumption and added 2 billion euros ($2.87billion Cdn)to its expected costs of the scandal.

The affair erupted in September when U.S. authoritiesexposed VW's use of "defeat devices" to cheat tests for
emissions of smog-causing nitrogen oxide. VW admitted suchsoftware was installed in up to 11 million diesel vehiclesworldwide.

VW's latest admission came after U.S. environmentalregulators said the carmaker had failed to inform it that
similar devices were installed on larger 3.0-litre engines usedin luxury sport utility vehicles from Porsche and Audi.

VW has denied this, but said on Tuesday it would immediatelystart talking to "responsible authorities" about what to doabout the latest findings on fuel consumption and CO2 emissions.

"From the very start I have pushed hard for the relentlessand comprehensive clarification of events," Volkswagen ChiefExecutive Matthias Mueller said. "We will stop at nothing andnobody. This is a painful process but it is our only
alternative."

Scandal rocked company, industry

The biggest business crisis in VW's 78-year history haswiped almost 24 billion euros nearly a third off the firm's
stock market value, forced out long-time CEO Martin Winterkornand rocked the auto industry, an important employer and sourceof export income in Germany.

"From an outside perspective and we are sure for themajority of VW employees, the degree and extend of cheating thathas been discovered so far is beyond imagination," wrote analystArndt Ellinghorst of banking advisory firm Evercore ISI.

The latest findings on fuel consumption and CO2 emissions areas which U.S. watchdogs have yet to address - were disclosedas VW continues a broad review of its handling of allpollution-related issues. While the findings mostly apply tosmaller diesel engines, one gasoline engine is also affected.