Volkswagen emissions scandal contributes to Standard & Poor's warning for global carmakers

Madeline Ratcliffe
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Slowing sales in China and Japan will hit profits (Source: Getty)

Standard & Poor's has said the global car industry faces mounting uncertainties, from slow growth in Asia to the continuing fallout from the Volkswagen emissions scandal.

The ratings agency said it expected regulators to heighten their scrutiny of emissions levels, and introduce more independent testing throughout the global industry in response to the revelation that German car-maker Volkswagen installed software to cheat emissions tests.

While European and US markets remain “highly competitive” with rising sales, S&P said China's economic woes will contribute to weaker sales, fiercer competition and pressure on revenues.

Read more: Fund managers demand transparency from car makers

Credit analyst Eric Tanguy said slowing growth in China will eat into car makers' earnings as Chinese sales volumes decrease, which are traditionally more profitable than average for foreign companies exporting there.

Japan's sluggish sales were also flagged up as a potential problem, although until recently the weaker yen made it easier for Japan's car manufacturers to compete on exports.

The agency's report said most factors, including GDP, pointed to continued growth over the next 12 months, and predicted sales will increase by two per cent in 2015 and three per cent in 2016.

But Tanguy warned:

The upside potential will likely be limited and reflect company-specific issues, such as asset disposals or heavy restructuring. And the recent emissions manipulations at Volkswagen demonstrate that company-specific developments can also rapidly erode a company's credit standing.

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