S&P threatens to downgrade Volkswagen over pollution scandal

Standard & Poor's threatened today to downgrade Volkswagen's credit rating over a worldwide pollution cheating scandal.
A day after fellow rating agency Fitch had placed VW's credit on "rating watch negative," S&P said it had similarly put Volkswagen's long- and short-term corporate credit ratings on "CreditWatch with negative implications."
The decision "follows VW's announcement that it will take a 6.5-billion-euro charge to third-quarter results to cover the costs of a global recall of 11 million vehicles which show discrepancies between diesel test results and actual road use," S&P said.
The credit rating agency said it expected the carmaker to incur "substantial remediation costs to correct the engines of the cars affected and potentially face material fines from regulators. Criminal charges in the US may also follow."

It saw a risk that fines "could lead to costs exceeding the 6.5-billion-euro charge the company currently has in place," it said.
In addition, there was a possibility that the scandal could "significantly affect VW's reputation, thus weakening the group's operational performance, due to lower volumes or additional costs."

The resignation of chief executive Martin Winterkorn yesterday "indicates that there could be a weaker management, governance and risk framework than we had expected."
And if it emerged that the problem affected the entire sector, with other manufacturers having also cheated pollution tests, "it may lead to tougher industry-wide regulations and requirements for diesel engines," S&P said.

Germany's powerful car industry has been reeling over the revelations that Volkswagen fitted up to 11 million of its diesel cars with devices capable of fooling emissions tests.