Volkswagen Canada Inc. & Volkswagen AG: Changes Trends to Negative, Confirms at A (high) & R-1 (middle)

Kam Hon; David Schroeder/416-593-5577 ext.2243, ext.2232/khon@dbrs.com

 

DBRS is changing the trends of the above ratings of Volkswagen Canada Inc. and VW Credit Canada, Inc. based on their parent and guarantor, Volkswagen AG (“VW” or the “Company”).  The trends of all three companies are being changed to Negative from Stable.  The trend changes reflect the Company’s deteriorating performance, weaker than expected credit metrics, and the uncertainty of a product-led recovery.

 

With the exception of China, VW is facing hostile conditions in all its major markets: Europe, North America, and Brazil.  The lack of new products in key car segments is hurting VW’s competitiveness and performance over the past couple of years.  The recent strength of the euro against the U.S. dollar further diminished lower profit from its U.S. operations.  Furthermore, high capital expenditures associated with new models have also weakened the balance sheet despite favourable internal cash generation.  The Company’s financial profile has weakened to near the low end of the range for the current ratings.  Market conditions in Europe, particularly Germany, and in the U.S. remain difficult.  The Company has launched the new Golf, its most important model, in Europe in October 2003.  Performance of the new Golf has been mixed.  The lack of new products and a reluctance to use incentives to boost sales will add to the challenge of VW’s U.S. operations.  Hence, it is uncertain if VW can stabilize its recent slide in operating performance.