Four-year incumbent Crispin Porter + Bogusky has decided not to defend the business, despite being invited to repitch. The review is being handled by intermediary Roth Associates.
The VW review comes as the global recession takes its toll on the US car industry, which is suffering from a downturn in demand. VW has been hit less hard than most car manufacturers -- its market share grew from 1.6% to 2% in July, according to Automotive News figures.
Over the past four years, Crispin Porter's VW advertising has earned a reputation for the bizarre -- one ad starred actress Brooke Shields expressing her concern that couples were having children in order to justify buying a VW Routan minivan.
Others included an execution starring an awkward German hip-hop character, while another highlighted VW's safety credentials by depicting a journey interrupted by a sudden collision.
A spokeswoman for Crispin Porter said in a statement: "We have been privileged to have had the opportunity to work with Volkswagen for the past four years and are extremely proud of all that we have accomplished together.
"As a rule, we do not participate in reviews for our current accounts and this will not be an exception."
On a more positive note for Crispin Porter, the loss of the prestigious car account coincides with the agency winning a portion of business from Microsoft.
According to US reports, the software giant has moved its Windows phone account to the agency out of McCann Erickson.
VW's US sales fell 13.5% in July, while the overall car market saw sales plummet 32%.
VW is world-renowned for its sometimes close-to-the-mark advertising. In the UK, where the account is managed by DDB London, the brand recently courted controversy when the presenters of BBC's 'Top Gear' were challenged to create some ads for the car marque.
Jeremy Clarkson, James May and Richard Hammond brought DDB onboard to help with the stunt. Clarkson's slogan for one mock ad read: "Volkswagen Sirocco TDI. Berlin to Warsaw in one tank," linking the concept of fuel efficiency to Nazi Germany's blitzkrieg invasion of Poland on September 1, 1939, marking the start of World War II.
The item resulted in more than 100 complaints to the BBC according to Ofcom.