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Volkswagen "won't be the same company" as the emissions scandal unwinds, Wolfgang Schaeuble, German's austere finance minister, warned on Wednesday.

On both sides of the Atlantic, Volkswagen's -- and indeed much of the carmaking industry's -- destiny is now more more in the hands of politicians than it has been for decades. Politicians will be under pressure both domestically and internationally to make the company, and maybe even the sector, pay for its apparent falsifying of emissions data.

On Wednesday, Volkswagen UK said that around 1.2 million vehicles in Britain, including Audi, Seat and Skoda cars, were affected by the emissions software, according to Reuters while in France just under a million vehicles are expected to have been affected.

In addition, Porsche, which is owned by Volkswagen, named Oliver Blume as its new chairman of the executive board.

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"It will be in the hands of politicians to weigh the impact on public health with the future of the industry," analysts at Credit Suisse pointed out in a research note.

"VW's infringements put the entire industry in a weak bargaining position."

The auto industry has been notoriously influential in German politics, unsurprisingly as it is the biggest revenue-generator in the whole of the mighty German manufacturing sector.

The close ties between the two can be seen in the career of Matthias Wissmann, current president of the industry body Verband der Automobilindustrie, and a former transport minister for Merkel's party, the CDU.

The powerful state of Lower Saxony still holds around 20 percent of Volkswagen shares, and its representatives on the Volkswagen board, who have included Merkel's predecessor as Chancellor Gerhard Schroeder, have often gone on to wield significant power in national politics.

This comfortable relationship may be coming to an abrupt end. Lower Saxony's current representatives at VW, including First Minister Stephan Weil, were already promising to take swift action on malfeasance at the company as the scandal first unfolded. With an election in 2017, legislators will not want to appear soft on corruption.

At the European level, the decision by regulators to focus on carbon dioxide (CO2) rather than nitrogen dioxide (NOx) may in retrospect prove to have worked in Volkswagen's favour.


Merkel herself was instrumental in lobbying against tougher European emissions targets two years ago. Indeed, a former U.K. transport minister, Norman Baker, claimed Prime Minister David Cameron changed his position to one more favorable to Germany after Merkel "called in a favor". The Department for Transport said in a statement: "Negotiations on new car CO2 targets are an entirely different issue to manufacturers illegally falsifying emissions tests."

There is also the potential international diplomatic fallout if the U.S. continues its clampdown on white collar crime with prosecutions in the emissions scandal.

Targeting a company with a relatively small U.S. base might be easier than taking on the might of Wall Street. Also, bear in mind that BP's disastrous accident in the Gulf of Mexico, for which it is still paying more than five years later, was just that, an accident. If individuals at VW deliberately took action to falsify emissions targets, the environmental and political fallout could be much worse than fines.

- By CNBC's Catherine Boyle