S&P lowered VW and VW Financial Services one notch, to “A-/A-2,” from “A/A-1,” the ratings agency said. The downgrade could hike VW’s cost of funds.
“We consider that the VW group’s emissions manipulation could have a negative impact on its sales volumes and prices, which could therefore affect the business growth and profitability of the captive finance business of VW FS,” S&P said in a written statement.
According to S&P, VW Financial Services finances about 26.5% of all VW vehicle sales globally and about 34% in Europe.
In addition, “VW FS is exposed to residual value risks in its leasing operations, comprising more than 1 million units,” S&P said.
The ratings agency said VW Financial Services sets conservative residual values, backed up by provisions for future losses. “However, recent events may reduce the resale values of the vehicles in various markets and lead to increased risks at VW FS,” S&P said. “This could lead to gradually increasing provisioning needs, which in turn would put pressure on the company’s profitability.”
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