Volkswagen #Dieselgate Hurts Company’s Fitch Ratings

The effect of the recent emission mishap is having serious consequences for the car company.

Volkswagen has been downgraded by Fitch as a fallout of the emission scandal. (Photo: Reuters)

Fitch rating agency has downgraded German auto company Volkswagen’s credit rating by two notches, saying that a widening pollution cheating scandal had exposed weakness in their corporate governance.

“The downgrade to ‘BBB+’ reflects the corporate governance, management and organisational issues highlighted by the ongoing emission test crisis,” said Fitch in a statement.

“We believe that the emergence of a fraud of this magnitude going either unnoticed or uncorrected by top management for so long is not consistent with a rating in the ‘A’ category,” it added. In addition to the rating cut down, Fitch has also put VW under the scanner, saying that changes made to its management since the beginning of the scandal “have been limited and do not seem to reflect a fundamental determination by the company to overhaul its corporate governance and culture”.

Last week’s revelations that the cheating was not only limited to nitrogen oxide but also carbon dioxide emissions also give rise to “the possibility of further problems still to be uncovered”, said Fitch. VW has been hit hard by allegations over a huge pollution scandal that primarily surfaced due to use of defeat devices, a sophisticated software fitted into diesel engines to skew the results of tests for nitrogen oxide emissions.

After keeping itself away from the lightlight, VW finally admitted to fitting 11 million diesel engines worldwide with the rogue software, triggering both regulatory and criminal investigations in several countries, including Germany and the United States. But last week, VW revealed that beyond the nitrogen oxide issue, it had also understated carbon dioxide emissions of 800,000 vehicles.

Fortunately, India is not seen as part of the emission contingent due to its lack of upgradation from Euro IV to globally-accepted standard i.e. Euro VI.