Volkswagen credit rating slashed amid deepening emissions scandal

Credit ratings agency Moody's has downgraded Volkswagen, as the emissions-rigging furore surrounding the German carmaker continues to deepen. Volkswagen's rating was slashed from "A2" to "A3" with a negative outlook and its miseries were further compounded as its share price tanked by a further 10%, erasing almost €5bn (£3.5bn, $5.4bn) off its market value today (4 November).

The downgrade follows revelations that the car manufacturer had downplayed the level of CO2 emissions and fuel consumption in some 800,000 cars sold mainly across Europe. In other words, vehicles are more costly to drive than the clients were led to believe.

"Today's downgrade reflects mounting risks to Volkswagen's reputation and future earnings following its announcement on 3 November regarding irregularities in CO2 and fuel consumption levels for certain Volkswagen group vehicles, as well as fresh allegations from the US EPA [Environmental Protection Agency] on 2 November that defeat devices were also installed in certain Audi, Porsche and Volkswagen Touareg models in the US," said Yasmina Serghini, a Moody's Senior Credit Officer and lead analyst for Volkswagen.

"These new claims pose further challenges to Volkswagen's financial flexibility and competitive position, and heighten Moody's concerns about Volkswagen's internal control and governance issues, thus further weakening its rating profile," Serghini added.

Volkswagen has been at the centre of a growing scandal since news that the company had cheated emissions tests by installing a "defeat device" broke in September. Volkswagen is reported to be linking the emissions crisis to a decline in sales, with its UK sales down by more than 8% over the same period last year. The auto-manufacturer has lost €24bn (£16.95bn, $26bn) - or a third of its value - since the wrongdoing was exposed.

In spite of Volkswagen's woes, the carmaker is in a fairly strong financial position. "Fundamentally, Volkswagen's ratings continue to be supported by the company's geographic and brand diversification, prudent financial policies and ability to generate solid and positive free cash flow," said Moody's.