Standard & Poors (S&P), the global rating
agency, has revised its outlook on German carmaker Volkswagen
AG (VW) to negative from stable. Similarly the outlooks
on VWs related entities, including Volkswagen Financial
Services AG (VW FS) and Volkswagen Bank GmbH (VW Bank),
were also revised to negative from stable.
S&P affirmed the A+ long-term and A-1 short-term credit
ratings on VW and related entities. VWs profitability
and free cash flow generation are expected to be relatively
weak this year, owing to heavy capital expenditures and
product launch costs related to new models, says
credit analyst Maria Bissinger.
outlook revision reflects increased concerns that continued
intensification of competition across the European automotive
industry will hinder a rebound in financial performance
beyond 2003, she adds.
outlook changes on VW FS and VW Bank solely reflect the
outlook revision on their 100-per cent owner VW, on which
the ratings of both are based owing to their status as
core subsidiaries, says credit analyst Harm Semder.
S&P regards VW FS and VW Bank as captive finance
companies, which, together with their operating parent
company VW, are seen as a single business enterprise.
is the leading European mass-market automotive manufacturer.
The groups 2002 results were broadly in line with
expectations, with sales of euro 86.9 billion and an operating
profit of euro 4.8 billion (down 12.2 per cent from 2001).
cash flows from operations remained at a solid level of
euro 8.2 billion; however, automotive net liquidity dwindled
to euro 459 million at yearend 2002 from euro 2.7 billion
at yearend 2001.
2003 results are expected to be affected by weak markets,
launch costs for new models and the ageing of key models,
such as the Golf, which is not expected to contribute
significantly to 2003 revenues, and the Passat, which
is not up for renewal until 2004.
pension liabilities (euro 10.3 billion at yearend 2002)
have been, and continue to be, fully factored into S&Ps
captive finance adjusted figures. The negative outlook
reflects the long-term competitive challenges that VW
is facing, as well as the limited leeway available to
VW at the current rating level. If free cash-flow
generation and net liquidity do not improve in 2004, the
ratings could come under pressure, adds Bissinger.