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Volkswagen dealer: Biggest fraud I have ever seen

Steve Kalafer is furious. After 23 years selling Volkswagens at his dealership, Kalafer reckons he has never seen anything as bad as the German automaker's rigging of the emissions levels on its clean diesel vehicles.

"This fraud makes Madoff look like the minor leagues," Kalafer said from his dealership in Flemington, New Jersey. "It is the biggest fraud I have ever seen in all of business. Over $300 billion of these products have been sold in Europe, $15 billion [in] the United States. That dwarfs Ponzi and Madoff combined."

Kalafer has found himself in an awkward position. He said he feels betrayed after spending millions of dollars buying diesel Volkswagens in the belief they were clean-burning and highly fuel efficient. At the same time, he's the focus of anger from customers who bought those VWs from him.

"Customers are upset. They are upset that the brand they invested in, the brand they counted on, failed them," he said.

"As a Volkswagen dealer I feel defrauded. I am very concerned about my employees, the people that for many, many years have worked on these cars, were proud to represent them. When they go home they are being asked simple questions: Did you know about the fraud? Did you know that they were cheating?"

Kalafer wants answers from top executives at VW headquarters in Germany. So far they have shared few details, as the company conducts an internal investigation into how more than 11 million vehicles were outfitted with defeat devices that turned on during clean air tests so diesel vehicles would appear to meet emissions standards.

Matthias Muller, the new CEO of Volkswagen, told the German newspaper Frankfurter Allgemeine Zeitung that only a few employees were involved in manipulating diesel engine software. Muller expects the recall of millions of VWs, including almost a half million in the U.S., to begin in January.

That's not enough for Kalafer. He wants a face-to-face explanation from VW bigwigs.

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As he waits, more than a dozen brand new, clean diesel Volkswagens are parked at the back of his dealership. They can't be sold until VW comes up with a way to bring those vehicles into compliance with state emissions laws.

When Kalafar looks at his unsold TDI clean diesels, he finds it ironic Volkswagen spent years preaching the virtues of clean diesel engines.

"It is turning out to be our Titanic," he said.

It may be premature to say this scandal will sink Volkswagen. In September, the carmaker managed slightly positive sales despite an order preventing the sale of clean diesel vehicles and a barrage of negative headlines.

Still, the brand is struggling. RBC Capital's most recent survey of consumers found 12.8 percent had a favorable view of VW in its most recent survey, down from 33 percent in May.

To entice potential buyers, including current VW owners, to come back to dealerships, Volkswagen is taking an extra $2,000 off the price of vehicles. The sweetener appears to be working.

"We have heard from dealers that the $2,000 has reversed the slowdown in traffic, so they've seen an uptick in showroom traffic," said Eric Lyman, an analyst with TrueCar.

Volkswagen of America knows it will have work hard to win back the trust of customers, as well as dealers like Kalafer.

Read MoreVolkswagen CEO: Massive cost cuts needed to manage crisis

"Dealer and customer satisfaction is a top priority for Volkswagen, as such, we have been actively working with our National Dealer Council to address the immediate needs of our nationwide dealer body," said Jeannine Ginivan, a spokeswoman for VW of America.

What Kalafer wants is a complete account of how this could happen.

"In all of the years that I have been in business, all of the frauds that I have seen, this one just takes the cake," he said.

Questions? Comments? BehindTheWheel@cnbc.com.