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Moody's Cuts Volkswagen's Credit Rating

Nov. 4, 2015
Moody's cut the company's rating by one step to A3, during a week where the company announced inflated reporting of fuel emissions and cheating devices in larger diesel engines as well.

WASHINGTON, D.C. — Moody's hit embattled German automaker Volkswagen with a credit downgrade Wednesday, saying the company's reputation and earnings were at risk from the growing emissions cheating scandal.

Moody's cut the company's rating by one step to A3, citing expanded allegations on emissions cheating and the company's admission that it falsified fuel consumption levels on some cars.

In addition, Moody's cited the company's acknowledgement Tuesday that it had under-reported CO2 emissions levels in another 800,000 vehicles, including, for the first time in the burgeoning scandal, cars with gasoline engines.

"In Moody's view, these new developments pose additional risk to Volkswagen's reputation, future sales and cash," the ratings agency said. "They also suggest serious internal control and governance issues, which may be more widely spread than believed initially."

Moody's particularly cited the US Environmental Protection Agency's accusation on Monday that the company included emissions-cheating defeat devices on high-end 3.0 liter diesel engines, in addition to the 2.0 liter diesels Volkswagen admitted in September had the illegal devices. 

"This new notice of violation concerns the last generation of diesel engines and more widely affects Volkswagen's premium brands — Audi and Porsche — which are top contributors to Volkswagen's profitability," Moody's said.

Volkswagen also announced today it has suspended the sale in the U.S. of the new Audi, VW, and Porsche models with 3.0 liter engines. The sales freeze covers diesel VW Touaregs, Audi A6, A7 and A8s and Q5 and Q7s, all from the 2015-2016 model years.

The new EPA accusation means Volkswagen will probably be locked in protracted litigation and could result in costly remediation, both in fines and more restrictions on its activities in the future, Moody's said.

Volkswagen stock plunged 9.5% to 100.45 euros today, pulling down the German stock exchange to end the day off 0.97% at 10,845.24 points. 

Copyright Agence France-Presse, 2015

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