Vw widens its auto financing advantage in Europe

Article by Andrew Christian, on October 12, 2012

Moody's Investors Service lowered the debt ratings on Fiat and PSA/Peugeot-Citroen to six levels below Volkswagen, enabling the region's biggest carmaker to widen its auto financing advantage in Europe. Moody's reduced both Fiat and PSA one level to Ba3 from Ba2. The ratings service gives VW a rating of A3 and offers a "negative" outlook on the Italian and French companies.

In addition, Moody's said that PSA's financing arm, Banque PSA Finance, is currently being reviewed for a downgrade. Because of VW's financing edge, it can offer better deals to dealers and consumers. The ACEA trade group said that VW’s share in Europe through August increased to 25% from 23.2%. On the other hand, Fiat and PSA's shares narrowed.

Moody's said that its downgrades have an impact on around 14.9 billion euros ($19 billion) of debt, which includes about 9.3 billion euros from Fiat debt and 5.6 billion euros from PSA. Moody's said that PSA's efforts to support its finances would probably not be enough with the demand of vehicles in western Europe poised to drop by 3% next year while pricing pressure rises.

Moody's analyst Falk Frey said that Fiat struggles due to weakening domestic market. It also lacks access to funds held by its Chrysler unit to offset cash drain in Europe. According to Fiat CEO Sergio Marchionne last Wednesday, the downgrade is not a reflection of Fiat's financial conditions globally.

They stress an issue that affects the whole industry, not only Fiat. PSA and Fiat were affected by the debt crisis in Europe. The demand in the region for vehicles is expected to drop to a 17-year low in 2012. PSA and Fiat depend on their home region for majority of sales and they don’t have significant operations in other countries to minimize the impact.

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