Volkswagen's Top U.S. Executive Knew Company May Be Breaking Emissions Rules 18 Months Ago

BERLIN, Oct 8 (Reuters) - Volkswagen's top U.S. executive knew the carmaker might be breaking U.S. emissions rules as long as 18 months before it admitted cheating diesel tests to regulators, he will tell a panel of U.S. lawmakers on Thursday.

The admission by Michael Horn, in a written testimony to a congressional oversight panel a day ahead of Thursday's hearing, is likely to raise questions about why the German company did not act more quickly to tackle its wrongdoing.

Almost three weeks after it confessed publicly to rigging U.S. emissions tests, Europe's largest carmaker is under huge pressure to identify those responsible, fix affected vehicles and clarify exactly how and where the cheating happened.

The biggest business crisis in Volkswagen's 78-year history has wiped more than a third off its share price, forced out its long-time chief executive and sent shockwaves through both the global car industry and the German establishment.

"In the spring of 2014 ... I was told that there was a possible emissions non-compliance that could be remedied," Horn, President and CEO of Volkswagen Group of America, said in his statement published on a U.S. House of Representatives website.

"I was also informed that the company engineers would work with the agencies to resolve the issue," he said, without identifying the people providing him with the information.

It was not until Sept. 3, 2015, that Volkswagen told U.S. regulators it had installed so-called "defeat devices" in some diesel engines to mask their true level of toxic emissions. U.S. regulators made public the wrongdoing on Sept. 18.

Volkswagen has come under fire on both sides of the Atlantic for its handling of the crisis, with lawmakers, investors and customers saying it has been too slow to release information.

Analysts are still unsure how widespread the cheating was.

Germany's Sueddeutsche Zeitung newspaper reported on Thursday that Volkswagen's manipulation software was switched on in Europe.

The company has previously said that, while the software was installed in around 11 million diesel vehicles, mostly in Europe, it was not active in the majority of them.

Volkswagen did not respond to requests for comment.

IN-HOUSE

Volkswagen has suspended more than 10 senior managers, including three top engineers, as part of an internal investigation. It has also hired U.S. law firm Jones Day to conduct an external inquiry.

But some analysts have questioned whether new Chairman Hans Dieter Poetsch and new CEO Matthias Mueller, both company veterans, will introduce the sweeping changes in business practices they think are necessary to restore Volkswagen's reputation.

Poetsch said on Wednesday it would take "some time" to get to the bottom of the matter.

The company, controlled by the Piech-Porsche clan, is not drawing on outside public relations and restructuring experts to help with damage-limitation efforts or its plans for a new company structure, one source close to the board said.

"There's a strong tradition to handle such matters in-house," the source said, adding the company was also unlikely to draw on outside experts as it reviews investment plans and steps up cost savings to help meet the cost of the scandal.

UBS analysts have estimated Volkswagen could face a bill of around 35 billion euros ($40 billion) to refit cars, pay regulatory fines and settle lawsuits, though they also say this is more than factored into the stock price after its plunge.

The crisis has been a major embarrassment for Germany, which has for years held up Volkswagen as a model of the country's engineering prowess and looks to the car industry as a source of export income and an employer of more than 750,000 people.

Economy Minister Sigmar Gabriel on Thursday urged Volkswagen to be pro-active in addressing its problems, but also said critics should not overstep the mark.

"There should not be a debate about the automotive industry or about diesel technology," Gabriel said after attending a meeting of Volkswagen's world workers council.

European carmakers rely heavily on diesel vehicles, which account for about a half of new sales in Europe compared with only a small fraction in the United States.

Horn, reaffirmed in his position by Volkswagen on Sept. 25, also said in his testimony Volkswagen had withdrawn its U.S. certification application for some model year 2016 vehicles over a software feature that should have been disclosed to regulators as an auxiliary emissions control device.

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(Additional reporting by Reuters bureaus; Writing by Mark Potter; Editing by Sonya Hepinstall)