"The rating action reflects the reputational damage on the group's brands following alleged manipulation of emission tests in the US and the expected multi-billion euros financial impact from potential fines, recall costs, lawsuits and legal claims," Fitch said.
"This crisis is also another illustration of our assessment of the company's fairly weak corporate governance compared with its peers."
Read more: Volkswagen chief executive quits
Volkswagen's chief executive Martin Winterkorn resigned earlier today saying he'd been "shocked by the events of the past few days".
The company admitted to US regulators that its cars were equipped with software designed to evade emissions tests. Volkswagen has since said it would set aside €6.5bn (£4.7 billion) in its third-quarter accounts to help cover the costs of the scandal.
The carmaker's shares closed up 5.2 per cent to 111.5p per share in Germany this afternoon. But they're still down around 30 per cent from when the scandal first broke on Friday.