The German manufacturer has been told it may be banned from competing for state fleet contracts throughout the EU if it spends subsidies received from the German state of Saxony. The £64 million subsidy given to Volkswagen for investing in the area is £41 million above the legal limit set by European law.

Volkswagen's fleet sales have more than doubled since the company realigned prices and started actively pursuing corporate deals in a concerted effort to push up its UK market share last year. Bernard Bradley, fleet marketing manager for Volkswagen UK, said the British importer had not been advised of the manufacturer's response to the warning, but he admitted any action could have a harmful impact on the company's future growth plans.

The threats came in an interview with commissioner Karel Van Miert in German magazine Focus. 'We are confronted with an illegal situation here,' he said. 'One cannot simply act illegally and hope the commission will shut its eyes - that would mean the end of the internal market and Europe. Exclusion from public tenders is conceivable for Volkswagen.'