Shares in European carmakers skidded Thursday after French authorities raided Renault factories and a lawsuit accused Fiat of inflating its US sales figures.
Overall, Asian and European exchanges faced a fierce selloff on intensifying concerns over the darkening world outlook and low oil prices.
"Numerous red alerts across China markets and a plunge in automotive stocks weighed on European stock markets on Thursday while the ongoing volatile downturn in oil prices swung from negative to positive catalyst throughout the day," said analyst Jasper Lawler at CMC Markets UK.
Shares in Renault plunged over 20 percent at one point after unions revealed French anti-fraud agents had raided several of its facilities.
Renault confirmed the raids, but said they were aimed at confirming independent tests ordered by the French government. The automaker said those tests had not found any software to cheat pollution tests that Volkswagen has admitted installing on over 11 million diesel vehicles.
French Environment Minister Segolene Royal later said Renault diesel engines had been found to exceed emissions limits, but said no cheating software had been found in the cars.
Renault shares ended the day down nearly 10.3 percent, with the Paris exchange's main CAC 40 index closing 1.8 percent lower.
Shares in rival French carmaker Peugeot Citroen, which said it had not been raided, fell 5 percent.
Volkswagen, which faces tens of billions of dollars in possible fines in the United States alone over the pollution test cheating software, saw its shares 3.7 percent.
BMW shares fell 3.4 percent and shares in Mercedes maker Daimler dropped 3.6 percent, while the Frankfurt exchange's DAX 30 index closed 1.7 percent lower.
Meanwhile shares in Fiat Chrysler Automobiles tumbled 7.9 percent in Milan and were down 5.5 percent in midday trading in New York after two US dealerships filed a lawsuit accusing the carmaker of inflating sales by offering incentives to dealers to report fictitious sales that are later cancelled.
Fiat Chrysler said it had not yet received the lawsuit, but that it "believes that the claim is without merit".
Most Asian markets sank Thursday, bearing the brunt after oil prices tumbled this week to 12-year lows below $30 a barrel.
Oversupply and demand fears linked to China's economic slowdown have sent shockwaves across trading floors, with energy sector shares particularly exposed because they eat into profits and revenues.
Japan's Nikkei dived 2.7 percent, Sydney shed 1.6 percent and Hong Kong lost 0.6 percent, while Shanghai ended 2.0 percent higher on bargain hunting.
However, the oil market crept back towards $31 in European trading, helping European markets cut early losses, while Wall Street moved into positive territory.
London's FTSE 100 index ended 0.7 percent lower as energy and commodity stocks shot higher as the oil price recovered.
- Key figures around 1700 GMT -
London - FTSE 100: DOWN 0.7 percent at 5,918.23 points (close)
Frankfurt - DAX 30: DOWN 1.7 percent at 9,7794.20 (close)
Paris - CAC 40: DOWN 1.8 percent at 4,312.89 (close)
EURO STOXX 50: DOWN 1.6 percent at 3,024.00
New York - Dow: UP 1.0 percent at 16,318.58
New York - S&P 500: UP 1.1 percent at 1,910.46
New York - Nasdaq Composite: UP 0.9 percent at 4,567.44
Tokyo - Nikkei 225: DOWN 2.7 percent at 17,240.95 (close)
Shanghai - Composite: UP 2.0 percent at 3,007.65 (close)
Euro/dollar: DOWN at $1.0858 from $1.0874 Wednesday