Having previously issued fines, the EC is once again investigating Volkswagen on anti-competitive grounds. If any legal action were successful, VW would be open to takeover from the larger players. With VW's recent recall underway the company will be looking for a change in fortunes. This may come in 2004 with new model launches.

The German government is likely to face legal action from the European Commission because of an anti-competitive law protecting Volkswagen, Europe's largest carmaker. It is believed that the German state of Lower Saxony has, in effect, a "golden share" in the company, which could act as a veto over any potential takeover bid.

Frits Bolkestein, the EU internal market commissioner, considers the elimination of golden shares as necessary to the free movement of capital across Europe. It is expected that the first step of action in a legal process that could take years could come as early as next week.

The Commission will face stiff opposition if it decides to pursue the claims - the German Chancellor Gerhard Schroder is currently a Volkswagen board member, and was previously the premier of Lower Saxony. The automotive industry represents by far the biggest employer in Germany and, with unemployment at 10% in the country, the Chancellor will be fiercely protective.

It is not the first time Volkswagen has come under the Commission's eye. It was fined E102 million in 1998 for obstructing cross-border trade within the EU in new VW cars. Then in 2001, a further fine of E30.96 million was imposed for preventing its German car dealers from selling the Passat model at a discount.

With a massive car recall currently underway, the news could represent a further blow to Volkswagen. The company will no doubt be hoping to revive its fortunes with the launch of several new models, most notably the Audi A3 this year and its sibling the Volkswagen Golf in 2004.

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