VW widens finance edge after Fiat, PSA downgrade by Moody's
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BERLIN (Bloomberg) -- Volkswagen Group widened its auto financing edge in Europe after Moody's Investors Service lowered the debt ratings on Fiat and PSA/Peugeot-Citroen to six levels below VW, the region's biggest carmaker.
Fiat and PSA both were cut one level to Ba3 from Ba2 by Moody's. The ratings service, which rates VW at A3, has a "negative" outlook on the Italian and French companies.
Moody's also said PSA's financing arm, Banque PSA Finance, is on review for a downgrade.
VW's financing muscle helps it offer better deals to dealers and consumers. The German carmaker's share of the European market through August rose to 25 percent from 23.2 percent, while Fiat and PSA's fell, according to the ACEA trade group.
The Moody's downgrades, which were announced Wednesday, affect about 14.9 billion euros ($19 billion) of debt, including about 9.3 billion euros from Fiat and 5.6 billion euros from PSA, Moody's said.
Moody's said PSA's efforts to shore up its finances "may not be sufficient" with western European vehicle demand poised to fall a further 3 percent next year and pricing pressure increasing.
Fiat is burdened by a deteriorating home market and lacks access to funds held by its Chrysler unit to offset cash drain in Europe, Moody's analyst Falk Frey said Wednesday.
In response, Fiat CEO Sergio Marchionne said: "The downgrade doesn't reflect Fiat's financial conditions globally. They highlight an issue that impacts the whole industry, not just Fiat."
Hard hit
PSA and Fiat have been hard hit by the effects of the European debt crisis on the region's auto demand, which is set to fall to a 17-year low in 2012.
The French and Italian carmakers rely on their home region for the bulk of sales and lack major operations elsewhere to soften the blow.
PSA, which was already cut to three levels below investment grade by Fitch Ratings last month, has agreed to sell a 75 percent stake in its Gefco logistics business to raise cash as it burns through about 200 million euros a month.
The Paris-based manufacturer's credit grade was cut by all three main rating services in July after the company reported a 662 million-euro first-half loss at its automaking unit.
PSA bank
PSA's downgrade may soon trigger a further lowering of its fully owned banking unit, Banque PSA Finance (BPF). "I'm expecting the downgrade to happen very shortly, as Moody's made it clear that it would keep its two-notch gap between BPF and PSA," Pierre Bergeron, a credit analyst at Societe Generale, said. "The move would increase financing costs of BPF and hit its operational margin."
BPF's downgrade to one level below investment grade would narrow its pool of investors, as mutual funds may shy away from a high-yield investment, Bergeron said.
PSA is determined to retain full control of BPF, dismissing calls by bondholders to sell a stake.
PSA Chief Financial Officer Jean-Baptiste de Chatillon said the auto lender can boost funding through securitization in the event of a downgrade.
Moody's said that the bank's "creditworthiness is inherently linked" to PSA's because of "intricate strategic, commercial and financial ties."
No recovery until 2019
Industry insiders don't expect a recovery in Europe's car market any time soon.
Full-year industrywide car sales will drop 8 percent to 10 percent in the region this year, the ACEA said on Wednesday.
Marchionne, who is ACEA president, said: "With sales on a downward trend for the past five years running, most automobile manufacturers are losing money in Europe at the moment. The outlook is far from rosy."
He declined to confirm a target for his company to break even in Europe by 2014, saying that he will give a "new view" by the end of October.
Earlier this week, Marchionne said Fiat will lower its forecast for the European auto market when updating its five-year plan at the end of the month. Fiat is set to lose 700 million euros in the region this year.
Volker Krueger, an analyst with LMC Automotive, said: "Car demand in western Europe will probably remain below pre-crisis levels until at least 2019."
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