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Volkswagen shares have taken a stock market hit after it was revealed that the german auto maker may have used software to fool emissions testing.

Fred Lum/The Globe and Mail

Volkswagen Canada Inc. is rolling out big customer incentives after its sales plunged 20 per cent last month in the wake of a scandal that led it to stop selling diesel cars and could cost its parent company more than $10-billion.

"The scale of these programs is unprecedented for Volkswagen in Canada, but necessary and appropriate given the circumstances," Volkswagen Canada president Maria Stenstrom said in a memo to dealers Thursday.

The move came after Volkswagen sales fell to 5,128 in Canada from 6,381 a year earlier during a month when overall sales in the Canadian market rose 4 per cent in the industry's best September on record. Sales of Audi vehicles, the luxury line of Volkswagen AG, fell 13 per cent.

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The diesel crisis hit Volkswagen near the middle of the month when news broke that the auto maker developed software that tricked regulators into believing that its diesel engines complied with environmental regulations. A so-called defeat device that showed its engines were meeting targets when they were being tested in laboratories turned off emission reduction components when the cars were on the road.

The 20-per-cent decline in September was just the second monthly sales drop for Volkswagen this year. Sales soared 13 per cent in the eight months ended Aug. 31.

"Our new car business has been chopped in half," one Volkswagen dealer said. He described 10 per cent of customers as angry, 10 per cent as feeling cheated because they bought the cars for environmental reasons and 80 per cent as patient and waiting to see how the auto maker responds.

"The people who love Volkswagen aren't going to stop loving Volkswagen," he said.

About 22 per cent of the company's sales in Canada are cars equipped with diesel engines. Sales of those cars were halted on Sept. 22.

"For October we realized we've got to be strong on this. We've cut one-fifth out of potential sales simply by imposing a stop sale, so we have to do very well on gasoline-powered cars," said Volkswagen Canada spokesman Thomas Tetzlaff.

The new incentive program adds $1,500 in cash to existing rebates on some 2015 models. Volkswagen was already offering $3,500 cash rebates on the 2015 Jetta and Tiguan and $2,500 on the Passat.

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There are low lease rates on Jetta, Tiguan and Golf and up to $2,000 in cash rebates for leasing customers on some models.

Another dealer said one of his stores had been hearing from 15 to 20 customers a day seeking some form of compensation and wanting to know what the dealership was going to do for them.

There is still the question of what happens to the 107,000 diesel cars containing engines with software that tricked regulators into believing that Volkswagen was complying with environmental regulations.

There is no decision yet on whether the cars will be recalled in Canada, Mr. Tetzlaff said.

"Anything that will happen in the U.S. will happen at the exact same time in Canada," he said.

Since the scandal broke two weeks ago, dealers have been clamouring for information to give their customers and incentive programs to boost sales.

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Drivers are also seeking information.

Michael Storino, who drives a 2013 Jetta with a diesel engine, said Volkswagen Canada has not contacted him since the scandal broke to explain what to do with his car. Mr. Storino has owned three diesel-powered Jettas, but is considering changing his allegiance when the lease on his current vehicle expires at the end of November.

"They haven't necessarily lost me forever, but I am questioning the relationship," he said.

Mr. Tetzlaff said Volkswagen Canada has set up a microsite on its website to address customer questions.

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Light-truck demand boosts Canadian auto sales

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Demand for light trucks boosted Canadian auto sales 3.7 per cent last month compared with a year ago, making it the best September on record, DesRosiers Automotive Consultants reported Thursday.

Canadians snatched up a total of 174,337 light vehicles in September, up from 168,041 in the same period last year.

Light-truck sales rose 10.4 per cent to 111,357, while passenger car sales slipped 6.2 per cent to 62,980.

Ford Canada came out on top, selling 28,214 light vehicles – an increase of 3.9 per cent from September, 2014.

General Motors was in second place, with 24,960 vehicle sales, followed by Fiat Chrysler, which sold 24,007 light trucks and cars.

DesRosiers says auto makers are possibly on track for a record-setting year in Canada. Year-to-date, they have sold 1.5 million vehicles – 2.5 per cent more than during the same period last year.

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September was also blockbuster sales month for the U.S. auto industry.

Strong consumer demand, easy credit and generous incentives combined to fill dealer showrooms. The industry sold 1.44 million cars and light trucks last month, up 15.8 per cent from a year ago.

Ford's U.S. sales grew 23 per cent in September, Nissan surged 18 per cent and Fiat Chrysler's U.S. sales jumped nearly 14 per cent. Sales at General Motors rose 12 per cent, while Toyota posted a 16-per-cent gain. Honda's sales were up 13 per cent.

Analysts had expected big increases because Labour Day was included in September this year versus August a year ago. Labour Day weekend is typically one of the biggest sales periods of the year, as dealers offer discounts to clear cars off their lots before the new model-year vehicles arrive.

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