Fitch Downgrades Volkswagen’s Rating Following Emissions Scandal

Fitch Ratings, the international ratings agency, has downgraded Volkswagen AG's Long-term Issuer Default Rating (IDR) to 'BBB+' from 'A', Short-term IDR to 'F2' from 'F1' and said that the Outlook on the Long-term IDR is Negative. 

The downgrade in the German carmaker’s ratings does not come as a surprise after the emissions cheating scandal came to light.  The company had admitted to U.S. regulators that it programmed its car to detect when they were being tested and alter the running of their diesel engines to conceal their true emissions. Discrepancies relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide, Volkswagen said in a statement at the time.

“The downgrade reflects the corporate governance, management and internal control issues highlighted by the ongoing emission test crisis related to up to 11 million diesel-powered vehicles”, Fitch said in a press release.

Fitch believes that the fraud of such magnitude, going either 'unnoticed or uncorrected' by top management for so long is inconsistent with a rating in the 'A' category. Moreover, Volkswagen's recent admission regarding the understated carbon dioxide emissions on 800,000 vehicles further substantiates this view, Fitch said and added that it underscores the core issue of internal control failure within the company.

The press release further said that the recent findings disclosed by the company's ongoing internal investigation are further hurting its image and reputation and could potentially lead to further legal claims from regulators and customers, further impacting its revenue and earnings. 

“We believe that Volkswagen's credit metrics are solid for the ratings and can absorb several billions euros of extraordinary cash outflow, particularly as we expect fines and legal claims to be spread over a few years”, it added.