By Joyce Lee
SEJONG, South Korea (Reuters) - South Korea on Thursday became the first country outside the United States to punish Volkswagen AG <VOWG_p.DE> on the basis of its own emissions tests, slapping the German automaker with a record fine and ordering a recall of 125,522 vehicles.
The environment ministry said it ordered Volkswagen Korea to submit a recall plan by Jan. 6, 2016, after its own testing showed Europe's biggest auto manufacturer manipulated devices that record diesel emissions in vehicles with older engines.
It also fined Volkswagen Korea 14.1 billion won ($12.31 million), the steepest financial penalty imposed on an automaker in Asia's fourth-biggest economy, a decision that could scare some buyers off imported cars generally.
"Today's measures are similar to what many other countries are doing - Germany ordered a mandatory recall, while the U.S. has begun the process of figuring out the fine amount," Samsung Securities analyst Esther Yim said.
"But it is Korea's biggest fine ever of an automaker for a single issue, and could dent the market share of imported automobiles."
Officials said government testing of 15 other automakers' diesel models would be completed by April, creating an uncomfortable degree of uncertainty at a time of slowing sales for importers in the world's 11th-biggest auto market.
Sales of diesel-powered German imports have been gaining share in a South Korean market long dominated by home-grown players led by Hyundai Motor <005380.KS> and Kia Motors <000270.KS>.
But the market share of imported vehicles fell from 15.7 percent in September to 12.34 percent in October, the lowest percentage since July 2013, according to the Korea Automobile Importers & Distributors Association.
Volkwagen sales fell from 2,901 registered vehicles in September to just 947 in October, the trade group said. Among imported brands, its market share fell from 14.2 percent in September to 5.4 percent in October.
Seoul decided to conduct its own tests on Volkswagen vehicles after the German giant admitted in September that it installed software in up to 11 million diesel vehicles worldwide that vastly understated their actual emissions of smog-causing nitrogen oxides.
Cars to be recalled in South Korea are Euro 5 engine vehicles with 2,000cc and 1,600cc diesel "EA189" engines, mainly sold in South Korea between 2008 and 2015 including the popular Tiguan model, the ministry said in a statement.
The ministry said it had not yet determined whether VW vehicles with the newer "EA288" engine - mainly Euro 6 models - had manipulated emissions.
Volkswagen Korea said recall details would be announced by Volkswagen headquarters.
($1 = 1,145.5000 won)
(Reporting by Joyce Lee; Editing by Stephen Coates)