BAYERISCHE MOTOREN WERKE Winterkorn resigned days after VW admitted to U.S. authorities that diesel car test results were rigged, sending its shares sliding as markets bet the firm would be hit with billions of dollars in fines.
But with European regulators yet to say what they plan to do about the scandal - an important decision because VW sold most diesel cars in Europe - the prospect of more fines and the likelihood of having to pay compensation to customers meant some investors felt Winterkorn had left too soon.
"His departure was inevitable but I do think that he should have taken a little more of the heat a little bit longer," a top-20 shareholder in VW said.
"Now the new CEO will be forced to absorb a lot of the criticism for what happened before his arrival, and for the future bad news that will undoubtedly come ... I think it will be very tough for that person to make a fresh start."
U.S and European authorities stepped up their investigations on Thursday, and the task of dealing with the fallout will fall on Matthias Mueller, the head of VW's Porsche unit who is expected to succeed Winterkorn.
"The question now is how big this is? We are very worried about what will happen in Europe, which is where they have sold the greatest number of diesel cars," said Sasja Beslik, head of responsible investments & governance at Nordea Asset Management, which owns shares in VW.
Many investors fear a situation similar to that which faced BP after its oil spill in the Gulf of Mexico in 2010, which took years to resolve, cost billions and depressed the firm's share price.
"There are lots of BP analogies around right now, and if you recall, a lot of the bad things people said about BP stuck on [then-CEO] Tony Hayward, and once he left, it cleared the air for the company," said the top-20 investor.
"I would have preferred Winterkorn to have stuck around for another month or so, through the worst of the storm, then the company appoint another CEO."
BAD NEWS TO COME?
Shares in VW have fallen nearly 30 percent since the close on Sept. 17, the day before the news broke, making VW the cheapest auto stock in the world as it trades around a 3-year low. But demand to buy remains weak, even among hedge funds, which appear to have greater interest in shorting the stock than becoming shareholders.
"From the conversations we've had, it's very difficult to touch a situation like this," said Michele Gesualdi, chief investment officer at hedge fund investor Kairos Investment Partners. "Even though you can believe there is value there, most people don't want to play in it at this point."
While few of the hedge funds spoken to by Gesualdi had been aggressively short on VW ahead of the news, data from Markit shows a pick up in demand to bet on further price falls since last Thursday.
Nearly 15 percent of Volkswagen shares that could be borrowed by hedge funds and others betting on a price fall were out on loan on Sept. 24, up sharply from the 9 percent out on loan on Sept. 17, Markit information showed.
Despite some concerns in the market that BMW and Daimler could be dragged into the crisis, demand to borrow their shares has yet to pick up markedly, the data indicated.
For Nordea's Beslik, VW remained a "pretty good company" and the fund firm would remain a shareholder to influence corporate change and ensure it could join any lawsuit that may arise from the turmoil.
But he said it would not buy any more VW shares over the next six months.
While it was good to tie the company's woes to Winterkorn, he said, the expansion of the probe meant costs would rise and it could take years to solve, making it harder to fix the company's managerial problems.
"The big question mark is how they could take such a decision. We have had a first meeting with them and it is obvious that they are in shock. This is a PR knock-out, so you have to give them some time."
(Additional reporting by Johan Ahlander in Stockholm and Nishant Kumar in London; Editing by Giles Elgood)
By Simon Jessop and Sinead Cruise
