Fitch threatens to downgrade Volkswagen over pollution scandal

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Published: September 23, 2015 11:40:06 PM

Fitch Ratings threatened today to downgrade Volkswagen's credit rating over a worldwide pollution cheating scandal, placing it under review until the scale of the company's woes becomes clear.

Fitch Ratings threatened today to downgrade Volkswagen’s credit rating over a worldwide pollution cheating scandal, placing it under review until the scale of the company’s woes becomes clear.

Volkswagen, the world’s biggest car maker by sales in the first half of this year, now has an A rating for its long-term debt, meaning it is deemed to be of “‘high credit quality”.

Fitch said it had placed VW’s credit on “rating watch negative”, meaning there is a higher risk of a downgrade which could lead to increased borrowing costs for the German car maker.

“The rating action reflects the reputational damage on the group’s brands following alleged manipulation of emission tests in the US and the expected multi-billion euros financial impact from potential fines, recall costs, lawsuits and legal claims,” Fitch said in a statement.

The crisis at the German auto giant was an illustration of its “fairly weak corporate governance” when compared with its peers, Fitch said.

Volkswagen’s shares rebounded a little during trade in Frankfurt following a two-day free fall that had axed 35 percent — or 25 billion euros (USD 28 billion) — off the company’s market value.

But it faces a growing tangle of legal threats after it admitted that as many as 11 million of its diesel cars worldwide are equipped with software capable of fooling official pollution tests.

Fitch said it did not expect the US Environmental Protection Agency to impose the reported maximum fine of more than USD 18 billion, but it did anticipate outflows to amount to several billion euros over the next two years.

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