Standard & Poor’s slashes Volkswagen’s credit rating on emissions scandal

According to a report on German local newspaper Handelsblatt, the company sources have revealed that several cost-cutting projects are being considered by the auto giant to save around 40 billion euros to bear the cost of emission scandal.

The ratings agency cut Volkswagen’s long- and short-term corporate credit rating to A-minus from A. It said it would keep Volkswagen on CreditWatch negative and could lower ratings by up to two more notches.

S&P said, “VW’s breach of USA environmental law and potential other laws outside the US represents a significant reputational and financial risk to VW over the medium term…” Moody’s Financial Services and Fitch Ratings have both put VW on notice of a possible downgrade.

Volkswagen, the iconic German automaker that last month admitted as many as 11 million of its vehicles worldwide are outfitted with software that alters how they worked when undergoing diesel emissions tests, is already paying a steep financial price for the scandal, with its stock trading at around 108 points Monday morning, down from yearly highs of 255.20.

Volkswagen’s top US executive apologized Thursday as the emissions-rigging scandal engulfing the world’s largest automaker deepened and members of Congress said the company violated the public’s trust.

“The downgrade reflects our assessment that VW has demonstrated material deficiencies in its management and governance and general risk management framework”.

The report bases its rankings on measuring “brand strength”, a score that takes into account “the country’s investments, societal well-being and its goods and services”, according to Ad Age. We recognize, however, that the full facts and consequences of VW’s emissions manipulation may not be known for months, even years.

VW said such devices can sense engine performance, road speed “and any other parameter for activating, modulating, delaying or deactivating” emissions controls.

“The costs of remediation, compensation, litigation, and potential fines could…be substantial and well in excess of this level”, S&P said.

By withdrawing the applications for the 2016 models, VW is leaving thousands of diesel vehicles stranded at ports nationwide, giving dealers no new diesel-powered vehicles to sell. The Justice Department, at least 45 states and environmental regulators around the world are investigating and could impose massive fines.