FRANKFURT — For nearly a year, Volkswagen officials told the Environmental Protection Agency that discrepancies between the formal air-quality tests on its diesel cars and the much higher pollution levels out on the road were the result of technical errors, not a deliberate attempt to deceive Washington officials.
But early this month, Volkswagen executives finally made a startling admission: The diesels it sold in the United States had software deliberately designed to cheat on the tests.
The company was evidently concerned that actually meeting the federal emissions standards would degrade the power of the engines, which it marketed as comparable in performance to gasoline engines. Meeting the standard would also undercut the fuel efficiency that is one of the main selling points of diesels.
The admission came only after the E.P.A. threatened to withhold approval for Volkswagen's new 2016 models, according to letters sent to company officials by the E.P.A. and California regulators.
Since news of that mass deception broke on Friday, Volkswagen has scrambled to conduct damage control, with its chief executive issuing an apology and the company saying it would not sell its 2015 and 2016 diesel cars in the United States.
But that did not stop Volkswagen shares from plummeting when trading opened in Europe on Monday. And the apology has not relieved pressure on Martin Winterkorn, the Volkswagen chief executive, whom analysts said would have tough questions to answer, seeking to know when he and other top executives at the company, which is ruled from the top with Germanic precision, were aware of the diesel deception.
Adding to pressure on Volkswagen, the German government said on Monday that it would also begin an inquiry to make sure that Volkswagen and other carmakers are complying with laws on auto emissions.
The E.P.A. disclosed the yearlong series of letters with Volkswagen as part of accusations it made against the company on Friday. The agency will require the company to recall nearly half-a-million vehicles equipped with 2-liter diesel engines dating to the 2009 model year. Volkswagen also faces fines that could run into the billions of dollars.
Stock Market Reaction to Volkswagen
Volkswagen shares plunged about 20 percent on Monday, as investors registered alarm at the damage the company could suffer.
Mr. Winterkorn issued an apology on Sunday, saying the company had "broken the trust of our customers and the public."
But the sophistication of the software used to manipulate emissions tests in the United States, and extensive attempts by Volkswagen to deflect official scrutiny before admitting misconduct this month, are sure to raise questions about Mr. Winterkorn's effectiveness only months after he survived an internal power struggle.
"Either he knew, or he didn't know, which is even worse," said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen who is a longtime Volkswagen critic. "Any politician in his situation would have to resign."
Volkswagen's supervisory board, which Mr. Winterkorn reports to, will hold a regularly scheduled meeting on Friday, and it is certain to discuss the E.P.A. action.
After being confronted last year with evidence that some diesel models did not comply with pollution standards under certain conditions, Volkswagen executives originally offered technical explanations, according to a letter of complaint sent to the company by the E.P.A. and the California Air Resources Board.
It was only on Sept. 3, according to the letters, that executives at Volkswagen of America, the company's United States unit, admitted that cars equipped with the 2-liter diesel motors contained the software.
The software measured factors such as the position of the steering wheel, the vehicle's speed and even barometric pressure to sense when the car was being subjected to testing, the E.P.A. said. The car then configured itself to reduce emissions of nitrogen oxide, a gas that is a major contributor to smog and is linked to an array of respiratory ailments including asthma, emphysema and bronchitis, the E.P.A. said on Friday.
Volkswagen is known for being a tightly controlled, autocratic organization, raising questions about how such a sophisticated system could have been installed in nearly half a million vehicles without knowledge of top management.
The plunge in Volkswagen shares was a clear indication that investors believe that company profit and sales could suffer because of the E.P.A. accusations. However, Volkswagen is relatively immune to stock market pressure because only 12 percent of its voting shares are traded. Porsche Automobil Holding, controlled by members of the Porsche family, holds a slight majority. The state of Lower Saxony owns 20 percent and the sovereign wealth fund of Qatar owns 17 percent.
Stephan Weil, the prime minister of Lower Saxony, where Volkswagen has its headquarters and major manufacturing operations, said in a statement on Monday, "Manipulation of an emissions test is completely unacceptable and without any justification."
But Mr. Weil said consequences could be discussed only after a thorough investigation of the circumstances.
In Berlin, the government of Chancellor Angela Merkel said it would ask carmakers for information as the first step in an inquiry.
"We expect reliable information from carmakers so that the Federal Office for Vehicles can check whether similar manipulation in the exhaust systems has taken place in Germany or Europe," Andreas Kübler, a spokesman for the Environment Ministry, told reporters in Berlin.
The European Commission has contacted Volkswagen as well as the E.P.A. for details about the accusations, a commission spokeswoman said.
"It is premature to comment on whether any specific immediate surveillance measures are also necessary in Europe and whether vehicles sold by Volkswagen in Europe are also affected," the spokeswoman said in an email. "We are taking the matter very seriously."
South Korea also planned to test Volkswagen cars to make sure they were in compliance with pollution rules, according to news reports.
More than half of all vehicles sold in Europe are diesels, which are popular because they typically offer better fuel economy than gasoline. European Union pollution rules were more favorable to diesels than United States rules, but they have been progressively tightened. The most recent standard, known as Euro 6, took effect for all new cars sold on Sept. 1.
Technology exists to reduce the amount of nitrogen oxides emitted by diesels. But the technology also tends to reduce fuel economy as well as performance. The software installed by Volkswagen on vehicles sold in the United States avoided this trade-off, which could have come as a disappointment to American customers, by scaling back pollution controls when the car was not being tested.
The accusations by the E.P.A. are a blow to Volkswagen's efforts to build up its meager market share in the United States, in part by promoting "clean diesel" technology.
The silver lining for Volkswagen, though, may be that its most profitable vehicles in the United States are Porsche and Audi cars not affected by the E.P.A. action. The cars affected are Volkswagen Golf, Jetta, Beetle and Passat models from 2009 through 2015 that are equipped with 2-liter diesel engines.
Another silver lining for Volkswagen may be that diesel powered cars account for only a tiny fraction of sales in China, which is the company's largest market.
Among Audi models, only the compact A3 is affected in the United States. The A3 accounted for less than a fifth of the 111,000 vehicles that Audi sold in the United States from January through August, and only a fraction of those A3s would have been equipped with diesels.
The E.P.A. said on Friday that Volkswagen would be required to recall the affected vehicles for repairs to make them compliant with smog regulations. Car owners would not have to pay for the repairs. Many owners may not bother, though, because the changes are likely to increase fuel consumption and reduce performance.
John Schilling, a Volkswagen spokesman, said on Sunday that the company would stop selling 2015 and 2016 Volkswagen and Audi models equipped with the 2-liter diesel engines, which the company had marketed as "clean diesel." The company will also stop selling used cars that have the engines, Mr. Schilling said.
He said he did not know how many models would be stuck on dealer lots as a result of the decision. This month, Volkswagen had said that 23 percent of new cars sold in August in the United States were diesels, or 7,400 vehicles. Some diesels, such as those used in Volkswagen S.U.V.s, are not affected by the E.P.A. action.
Correction: September 21, 2015
An earlier version of this article misstated, in one instance, the likely effects of repairs to affected vehicles. As the article noted elsewhere, the repairs are likely to increase fuel consumption, not reduce it.
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