Volkswagen Dispute With Suzuki Negative for Credit, Moody’s Says

The “likely end” of Volkswagen AG (VOW)’s alliance with Suzuki Motor Corp. (7269) is negative for the German automaker’s credit because it limits 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 today.

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 Wolfsburg, Germany-based automaker owns a 19.9 percent stake in Suzuki, which it has accused of violating a cooperation agreement by purchasing engines from Fiat SpA.

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.”

Suzuki shares gained 2.4 percent to 1,678 yen as of 2:33 p.m. in Tokyo trading, while the benchmark Nikkei 225 (NKY) Stock Average advanced 1.8 percent.

“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.

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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