Suzuki divorce is credit negative for VW: Moody's

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Months of squabbling that has brought Volkswagen to the brink of divorce with Japan's Suzuki will dampen its growth prospects in Asia and have a negative credit effect on Europe's biggest carmaker, credit rating agency Moody's said.

Suzuki and its biggest shareholder VW have been in dispute for months over access to key technologies, and the Japanese car maker has asked VW to end the partnership.

"This likely end of the cooperation agreement is credit negative for Volkswagen, which aimed to strengthen its position in Asia through its agreement with Suzuki, and in particular India," Moody's Senior Vice President Falk Frey said in a report on Monday.

Frey said VW was now likely to develop its own small entry-level vehicle for the Asian market, possibly based on the platform of the recently unveiled VW Up!, the Seat Mii or the Skoda Citigo.

"The challenge would be to meet the low-cost budget required for a profitable product in this segment," he said.

Suzuki served VW with a notice of breach of contract this month, 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 company said.

Volkswagen has not been ready to give up on the partnership, though, and responded by saying that returning the 20 percent stake was out of the question.

An end to the partnership would not hurt VW's competitive position in its existing markets, Frey said.

"We had not anticipated any unit volume sales nor earnings contributions or synergies from the partnership in the short to medium term," he said.

"In addition, no launch timeline of a vehicle as a result of the partnership had been disclosed."