MUMBAI -- An end to Volkswagen's alliance with Suzuki would have a negative effect on VW's credit rating, because it would limit growth options in Asia, including India, Moody's investors service said.
Volkswagen had "aimed to strengthen its position in Asia through its agreement with Suzuki, and in particular India," said Moody's in its weekly credit outlook report, e-mailed on Monday.
Volkswagen is ranked A3, the fourth-highest investment grade, by Moody's, which hasn't changed the positive outlook set Aug. 30 on the rating.
The German carmaker owns a 19.9 percent stake in Suzuki, which it has accused of violating a cooperation agreement by purchasing engines from Fiat S.p.A. That allegation "significantly disparaged Suzuki's honor," chairman Osamu Suzuki said Sept. 22. He demanded a retraction.
The two automakers have been at odds since VW said in its March annual report that it could "significantly influence financial and operating policy decisions" at Suzuki, describing the Japanese company as an "associate."
Two weeks ago, Susuki served VW with a notice of breach of contract, demanding the German company give it access to key technologies within weeks. Unless it does so, Suzuki's biggest shareholder must sell back its stake and quit the alliance, the Japanese carmaker said.
Volkswagen has said it might take legal action against Suzuki after the Japanese automaker served it with the breach of contract.
No projects from alliance
"VW is now likely to develop its own small entry-level vehicle for the Asian markets," said the Moody's report. "The challenge would be to meet the low-cost budget required for a profitable product in this segment."
The cooperation agreement between VW and Suzuki hasn't resulted in a single project, the companies have said.
Suzuki spokesman Ei Mochizuki said the company had no comment about the Moody's report. Volkswagen spokesman Eric Felber declined to comment on the report.
The Japanese automaker plans to sell its holdings in VW should the tie-up end, the company said Sept. 12. VW has said it doesn't plan to sell or reduce its stake in Suzuki.