Volkswagen (Julius Kielaitis/Bigstock.com)

Volkswagen has been accused of cheating emissions tests in the US by installing so-called 'defeat devices' on thousands of its cars.

The German automaker – which became the world's largest car manufacturer in the first quarter of 2015 – has been accused of installing devices which can detect when the car is undergoing emissions testing and lower emissions.

The US Environmental Protection Agency (EPA) say these defeat devices were installed in the engine management systems of VW diesel engines and act by reducing pollutants such as nitrogen oxide (NOx) particles. Once back on the road in a normal driving environment the devices switch off, emitting pollutants that are up to 40 times higher than when running in emissions testing mode.

Cynthia Giles, an EPA enforcement officer, said: "Put simply, these cars contained software that turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test.

"We intend to hold Volkswagen responsible. VW was concealing the facts from the EPA, the state of California and from consumers. We expected better from VW. Using a defeat device in cars to evade clean air standards is illegal and a threat to public health."

VW could face fines of up to $37,500 (£24,000) per vehicle affected, which if levied would amount to around $18bn in penalties.

However, lawyers are unlikely to gun for such a large amount, since VW is a relatively small player in the US.

The damage to the company's reputation among US authorities and consumers could be considerable, especially at a time when the Wolfsburg-based outfit is struggling with North American sales. Despite being a mass-market brand, VW has just 1.9 per cent of the US market share.