S&P downgrades Volkswagen by one notch

Standard & Poor’s Ratings Services has downgraded its rating on Volkswagen AG by a notch to ‘A-‘ from ‘A’ following the company’s admission that it installed software designed to manipulate diesel engine exhaust emissions in 11m vehicles.

The ratings agency said the downgrade reflects its assessment that VW has demonstrated material deficiencies in its management and governance and general risk management framework.

“We believe VW's internal controls have been shown to be inadequate in preventing or identifying alleged illegal behaviour in the US and misconduct in other regions. We understand the software was installed in VW vehicles over a period of several years, in a number of vehicle brands and models, and appears to have been intended to deliberately mislead regulators, governments, and consumers.”

S&P said the company’s breach of US environmental law and potentially other laws outside the US represents a significant reputational and financial risk to the car maker over the medium term.

In addition, the ratings agency said it has not yet concluded its full assessment of the potential impact on VW from the emissions scandal.

As a result, it has maintained its negative CreditWatch placement to indicate the possibility that it may lower the long-term ratings on VW by up to two more notches.

S&P also cut its rating on Volkswagen Financial Services to ‘A-‘ from ‘A’.