Volkswagen’s credit rating will suffer if the alliance with Suzuki is ended, Moody says

Article by Christian A., on October 25, 2011

Moody's investors service said that Volkswagen’s credit rating will suffer if it ends its alliance with Suzuki since it will have an impact on its growth options in Asia, specifically in India. In Moody’s weekly credit outlook report, it said that Volkswagen seeks to reinforce its position in India and the rest of Asia via its partnership with Suzuki.

Moody’s rate for Volkswagen since Aug. 30 is A3, the fourth-highest investment grade. Moody’s has kept its positive outlook for the automaker since giving this rating.

Volkswagen, which holds a 19.9% stake in Suzuki, claims that Suzuki breached a cooperation agreement by buying engines from Fiat S.p.A. Chairman Osamu Suzuki, on Sept. 22, had demanded a retraction, saying that this accusation “significantly disparaged Suzuki's honor."

The conflict between the two automakers started when VW’s March annual report had said that it has the power to “"significantly influence financial and operating policy decisions" at Suzuki. VW referred to Suzuki as an "associate."

A few weeks ago, VW was served with a notice of breach of contract by Suzuki, which also demanded that it be given access to VW’s key technologies within weeks. Suzuki said that if VW won’t give in to the demand, it would have to sell back its stake and quit the alliance.

On the other hand, VW said that it may take legal action against the Japanese company. According further to the Moody's report, VW is expected to develop its own small entry-level vehicle for the Asian markets but it would have difficulty in meeting the low-cost budget needed for a product to be profitable in this segment. [source: Autonews]

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Topics: vw, suzuki

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