Two weeks after revealing that Volkswagen (XETRA: VOW3-DE) had cheated on diesel emissions tests, officials from the Environmental Protection Agency still have not formally ordered a recall of 482,000 VW products, but that step is "likely" to take place, according to an EPA spokesperson.

Sources inside Volkswagen, meanwhile, told TheDetroitBureau.com that the automaker is now working with the federal agency to come up with an acceptable fix for diesel models that can produce as much as 40 times the allowed level of pollutants such as smog-causing NOx.

VW has already said it is developing a retrofit for a total of 11 million diesel vehicles sold worldwide that contained a secret "defeat device" designed to reduce emissions levels during testing.

VW's problems have continued to escalate in recent days, and even as prosecutors in both the U.S. and Germany look into the scandal, the automaker's top U.S. executive has been summoned to Capitol Hill, where he will testify before a congressional oversight panel on Oct. 8.

"The American people want to know why these devices were in place, how the decision was made to install them, and how they went undetected for so long. We will get them those answers," said Rep. Tim Murphy, the Pennsylvania Republican who serves as chairman of the Energy and Commerce Subcommittee on Oversight and Investigations.

The hearing will come less than a month after the EPA announced that Volkswagen had secretly added software code to its digital engine controllers designed to rein in emissions during testing. But in the real world, the nearly half-million diesel vehicles sold in the U.S. over the last seven years were allowed to produce significantly higher levels of pollution than allowed by federal standards.

The scandal threatens to consumer the automaker, with potential fines of more than $18 billion from the EPA alone. VW could face additional penalties resulting from the Justice Department investigation, as well as possible criminal sanctions. And the maker has been hit with a number of class-action lawsuits alleging, among other things, that it defrauded customers.

September numbers released by VW on Thursday show that the maker did gain about 1 percent in sales compared to the same month a year ago. But the overall industry saw a 16 percent jump in volume for September. And since the scandal only hit mid-month, many analysts believe VW could be hit even harder in October.

A new study by consulting firm AutoPacific, on Thursday found that three out of four American vehicle owners now had a negative view of Volkswagen compared to one in four before the cheating scandal.

But the survey found that the majority Americans believe other automakers are rigging emissions tests, as well — despite statements by several, including BMW (XETRA: BMW-DE) and Mercedes-Benz, that they're playing by the rules.

The scandal is expected to lead regulators here and abroad to tighten testing procedures. In fact, former EPA head Margot Oge told the Associated Press that the agency had come up with a way of catching cheaters a decade ago. But due to limited resources, that testing process was focused on heavy-duty truck manufacturers who had a history of cheating.

Nonetheless, EPA's failure to catch VW could put it in for criticism during the upcoming congressional hearing — much as the National Highway Traffic Safety Administration was faulted for failing to uncover the decade-long delay by General Motors (NYSE: GM) in recalling 2.5 million vehicles with defective ignition switches.

Both VW and the EPA could take hits for the delay in ordering a formal recall of the diesel vehicles sold in the U.S. For the moment, the agency has not formally ordered that step, but a spokesperson noted, "EPA will require VW to remedy the noncompliance. It is likely that there will be a recall of affected vehicles."

The timing, however, is uncertain. Part of the problem is that VW does not yet know how to bring its U.S. diesels into compliance with some of the world's toughest emissions rules. The situation is complicated by the fact that VW has made several major updates since launching its WA 189 diesel engine seven years ago, and each version may need a different fix.

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