Wolfsburg, which is home to the world's biggest car plant - owned by Volkswagen (VW), relies heavily on corporation tax revenue from VW to maintain its status as one of Germany's wealthiest cities by per-capita GDP.

But with the huge emissions test scandal likely to severely dent VW's profits for the next few years, the city council has ordered a spending and hiring freeze.

VW admitted last week it put devices in some of its diesel engines which could cheat emissions tests. The company now faces criminal investigations, lawsuits and vehicle bans in several countries.

"Even if our town is debt-free and we've been able to build up reserves, we can expect to see a sharp drop in business tax," Wolfsburg's mayor Klaus Mohrs said in a statement.

Purse strings tightened

In recent years, Wolfsburg has benefited from increased payments by the carmaker, due to rising profits mostly from emerging markets. More than half of the city's population is employed by Volkswagen.

The city's budget amounted to nearly 430 million euros ($484 million) this year and the corporation tax VW pays is a vital source of revenue.

But the emissions scandal has forced Wolfsburg city council to delay publishing its 2016 municipal budget until December. Officials predict tax income from the car giant will be lower, even within this financial year.

"Projects that have already begun will continue to run - but new measures will be the first to be stopped," he said, adding that no jobs were currently at risk in the council.

Many of the city's residents are worried that job losses are imminent at VW's factory in Wolfsburg and elsewhere. Even VW's new CEO admits the company faces its biggest test ever.

"Here we say that when Volkswagen catches a cold, we get pneumonia," local resident Carsten Steinbach told Agence France Presse.

VW also funds dozens of sporting and cultural endeavors in the city, not least Bundesliga football team VfL Wolfsburg - at Old Trafford playing Manchester United in the Champions League this Wednesday.

mm/msh (AFP, dpa)