Volkswagen has an easier time at raising money to finance auto loans than its European rivals (which have mounting debts). At Volkswagen’s annual press conference last Monday, it revealed that at the end of 2011, it had a net liquidity in its auto operations of 17 billion euros ($22.3 billion). It predicted that its profits in 2012 would be stable compared with other European carmakers such as PSA/Peugeot-Citroen, which has a net debt of 3.36 billion euros and Renault with a debt of 299 million euros.
Philippe Houchois, a London-based analyst with UBS, said that VW can be more aggressive on financing than the French carmakers since it could raise money cheaper.
Automakers experience rising pressure to finance their own sales as commercial banks in Europe have moved to cap their exposure to auto loans due to the sovereign debt crisis in the region.
Last month, PSA revealed plans to partner with General Motors Co. Meanwhile, Fiat said that to have a chance at beating Volkswagen, the region has to have more consolidation.
Moody's Investors Service’s rating for Volkswagen is A3, which is four levels higher than both PSA and Renault. Volkswagen sold 8.27 million vehicles last year, enabling it to hit record profits. This means more savings when trying to take cash from investors.
Data from Bank of America Merrill Lynch's European autos index indicate that on a loan of 100 million euros, PSA will need to pay around 2 million euros higher in annual interest than Volkswagen. Meanwhile, Renault's financing costs would be 1.4 million euros more a year. Fiat is rated Ba2, one level lower than the French carmakers. Fiat is relying on a joint venture with Credit Agricole for its auto loans. [source: BusinessWeek]