Big 3 credit rating agencies may downgrade VW
The three major credit ratings agencies warned they may downgrade Volkswagen AG’s debt because of massive costs expected from the crisis over the automaker’s diesel emissions crisis, as 29 state attorneys general announced they are reviewing the issue.
Standard & Poor’s and Moody’s Investor Services on Thursday revised their outlooks on VW to negative. On Wednesday, Fitch warned it may downgrade VW.
The U.S. Justice Department is investigating, as are criminal prosecutors in Germany and regulatory agencies around the world. New York announced this week it was launching a state probe.
On Thursday, Michigan Attorney General Bill Schuette said at least 29 states, including Michigan, initiated a multi-state investigation of Volkswagen’s representations to consumers about their diesel vehicles. The attorneys general will be sending subpoenas to Volkswagen.
“Many states will be reviewing this matter through both their consumer protection and environmental protection divisions,” his office said.
Late Thursday, VW apologized in a Facebook post to U.S owners of the 482,000 diesel vehicles that had excessive emissions.
“Volkswagen would like to offer our deepest apologies to those affected by our violation of CARB and EPA emissions standards. We will remedy the issue, and we will make things right in order to win back the trust of you, our customers, our dealers, the government, the public, and our employees. We kindly ask for your patience as we work very hard to address this complex issue, and we will share more information as soon as we can,” said Michael Horn, president and CEO Volkswagen Group of America.
VW said earlier this week it will take a $7.3 billion charge to pay damages related to its admission that hidden software allows pollution-control systems on 2.0-liter diesel cars to work normally when being tested for harmful tailpipe emissions — but turns those systems off during regular driving. That allowed 11 million cars worldwide to produce up to 40 times the allowable smog-forming pollution permitted in the United States.
Moody’s said in a note to investors it believes VW has the “financial wherewithal to cover the amount of the announced” estimated costs of $7.3 billion “although fully funding that provision would severely limit flexibility.”
The company has about $30 billion in cash on hand, and annual revenue of nearly $230 billion.
“Moody’s concern, however, is that Volkswagen’s alleged breach of U.S. environment rules and, especially, the process by which that breach occurred, will have an adverse effect on its reputation and credibility within the global passenger car markets,” the note said.
S&P’s note said, “The resignation of the CEO indicates that there could be a weaker management, governance and risk framework than we had expected.”
The firm’s CEO, Martin Winterkorn, resigned Wednesday.
VW’s supervisory board is expected to name the head of its profitable Porsche luxury car unit, Matthias Muller, as the new CEO of Volkswagen Group, according to reports by the Wall Street Journal and Reuters. Volkswagen group has 12 major automotive brands including Audi, Skoda, Seat, Bentley and Lamborghini.
A German magazine reported Thursday that at least two more high-ranking VW executives are expected to leave the company. Several media outlets reported Horn will lose his job Friday but the company called that “speculation.” Horn said Monday at an event in New York that VW had “totally screwed up” and would “pay what we have to pay.”
Also Thursday, authorities in the United Kingdom, Italy and Germany announced investigations into emissions cheating.
Germany said Thursday that same software was built into the automaker’s cars in Europe, although it isn’t yet clear if it helped cheat tests as it did in the U.S.
In neighboring France, Environment Minister Segolene Royal on Thursday announced random tests of about 100 French cars to ensure that their engines meet pollution standards in the wake of Volkswagen’s emissions scandal.
And the European Union’s executive Commission called on national authorities “to look into the implications for vehicles sold in Europe and ensure that EU pollutant emission standards are scrupulously respected.”
The Associated Press contributed.