Reuters / March 15, 2004

LONDON -- Fitch became the first agency to downgrade Volkswagen's long-term rating on Monday, saying the move reflected the German automaker's weak outlook for 2004 which could prompt it to downgrade the firm again.

Fitch Ratings cut Volkswagen's senior unsecured rating to A from A+, putting the rating on rating watch negative, meaning it considered a further cut.

Volkswagen warned last week that the start of 2004 would be "lousy" and that a goal of beating last year's operating profit before special items was ambitious.

"The rating actions reflect the group's announcement (last) week that it expects a weak outlook for 2004 earnings and cash generation, after a sharp decline in profitability for the full-year 2003. VW expects that in the absence of any economic recovery the group will remain exposed to the ongoing low demand and the unfavorable exchange rates," Fitch said in a statement.

"The agency is planning to resolve the Rating Watch over the coming weeks following a review of company information provided, and expects that any further downgrade of the Senior Unsecured rating would be limited to one notch," it added.

The company declined to comment on the downgrade.

A bond trader in London said Volkswagen's bonds were unmoved by the news. "This basically puts them (Fitch) in line with Moody's and S&P," he said.

Standard & Poor's said on Friday it would decide in a few months whether to cut Volkswagen's A long-term rating.

Moody's Investors Service lowered its long-term rating for Volkswagen by one notch to A2 with a negative outlook in December. It said then that Volkswagen's performance in 2003 was weak and it did not expect the auto maker to return to previous years' profitability levels in 2004.

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