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AUTOMOTIVE: Volkswagen (VW A3/BBB+/A-): Ratings Impact

AUTOMOTIVE
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Risk appears to be building on the ratings outlook.

  • We look at ratings risk for VW following Friday’s profit warning. Spreads have long since traded closer to high triple B levels than the composite low single A rating.
  • Moody’s had expected their preferred margin measure to fall 0.3% this year. Reported EBIT margin is set to fall 1.4% on the new guidance. If we apply the same fall for Moody’s, that puts margins at 5.4% vs 7% ratings threshold, with “substantially below” on that a factor that could lead to downgrade. Core brand margins, market share and cash flow are also ratings negatives. Liquidity and leverage are negatively impacted but at more comfortable levels for the rating.
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Risk appears to be building on the ratings outlook.

  • We look at ratings risk for VW following Friday’s profit warning. Spreads have long since traded closer to high triple B levels than the composite low single A rating.
  • Moody’s had expected their preferred margin measure to fall 0.3% this year. Reported EBIT margin is set to fall 1.4% on the new guidance. If we apply the same fall for Moody’s, that puts margins at 5.4% vs 7% ratings threshold, with “substantially below” on that a factor that could lead to downgrade. Core brand margins, market share and cash flow are also ratings negatives. Liquidity and leverage are negatively impacted but at more comfortable levels for the rating.