The company contributed bombs and vehicles for the Nazi war effort and made parts for the V1 buzzbombs that blitzed Britain.
The full unpalatable past of one of the world's most loved cars has been uncovered in a 10-year trawl through German archives by two of the country's leading historians.
Last week, to the embarrassment of many Volkswagen executives, the results were published. They could barely have come at a worse time.
In 1998, VW is planning to relaunch the Beetle. The company is also involved in massive investment in Israel, where it is setting up a $600m manganese plant. And David Herman, head of its main rival Opel, is Jewish.
Yet it was Volkswagen's own idea to commission the research. The authors, Hans Mommsen and Manfred Grieger, were paid by the company to write an independent history of VW during Nazi times.
The project forms part of a trend among Germany's oldest and biggest companies to bare their souls in an attempt to exorcise the demons of their pasts.
Jewish pressure groups, including the Holocaust Educational Trust, have been demanding that the companies make an admission of their complicity with the Nazi regime.
The trust is particularly angry that Dresdner Bank, which owns Kleinwort Benson, the British investment bank, has not done enough to apologise for its close relationship with the SS and the Nazi party.
By contrast, Deutsche Bank hired five independent historians to write a corporate history of the bank, which detailed its part in Aryanisation and the dispossession of Jewish property, for which it said the bank bore a moral guilt.
Daimler Benz, commissioned a similar history and has voluntarily paid out more than pounds 6m in compensation to former slave workers. The Third Reich used around 10 million people for slave labour, working for such companies as Siemens, Krupp and AEG. The German courts have now given the slave labourers, mainly from eastern Europe, the right to sue companies such as VW for their suffering.
The story of Volkswagen and the Nazis, entitled Volkswagen and its Workers in the Third Reich, could form the basis for their actions.
It details how Hitler commissioned the Beetle from the car designer Dr Ferdinand Porsche and then ordered the building of Kraft durch Freude Stadt - Strength through Joy Town - to house the production workers.
When war started, the production lines switched to making kubelwagen personnel carriers and schwimmwagen amphibious vehicles.
Jonathan Mantle, author of Car Wars, which analysed 20th-century politics through the eyes of the car companies, said that all car manufacturers had accepted that in times of war they had to strike a deal with the government of the country in which they were operating. "All successful car companies in the first part of the 20th-century have always been synonymous with the military destinies and ambitions of their host country."
He said that General Motors, through its German subsidiary, had contributed to the Nazi war effort and that BMW had been a greater user of slave labour than Volkswagen.
"Daimler Benz were much closer to the Nazi Party and Adolf Hitler than Volkswagen were. The Daimler Benz badge used to hang next to the swastika at rallies."
Mr Mantle said evidence suggested that disclosures about a car company's shady history were likely to have no influence on potential buyers.
His theory is borne out by Britain's own reluctance to take over Volkswagen when the Beetle plant was offered to the Allies as part of a package of war reparations; moral decisions never came into it.
"It's the most God-awful design I ever saw,'' said Lord Nuffield, of the British Motor Corporation. "All the wrong way round.''
His colleague Lord Rootes added: "It is quite unattractive to the average buyer. It is too ugly and too noisy.''Reuse content