Credit rating agency Moody's last week cut the outlook on Volkswagen's debt to negative, while rival Fitch said it expected the emissions-cheating scandal to affect the entire automotive sector.
Volkswagen is looking at ways to cut costs and boost cash flow and could sell more shares if the price of clearing up a scandal over its rigging of diesel emissions tests puts its credit rating at risk.
The German carmaker's supervisory board has discussed ways of strengthening its finances, but has not talked about selling off assets or brands, two sources close to the board told Reuters.
One source said raising money by selling more shares would become likely if the cash costs of the scandal exceeded a "critical level", without elaborating.
Volkswagen declined to comment
Europe's largest carmaker has admitted cheating in diesel emissions tests in the United States and Germany's transport minister says it also manipulated them in Europe, where Volkswagen sells about 40 percent of its vehicles.
The biggest crisis in the company's 78-year history has seen its shares plunge more than a third in value and forced out long-time chief executive Martin Winterkorn, who is now being investigated over allegations of fraud.
It has also sent shockwaves through the global auto industry and the German establishment, which has for years held up Volkswagen as a model of the country's engineering prowess.
The company has set aside 6.5 billion euros ($7.2 billion) to help cover the costs of the scandal, but some analysts think the final bill could be much higher.
Volkswagen has said it will refit up to 11 million vehicles containing software capable of cheating emissions tests. It also faces potential fines from regulators and prosecutors, lawsuits from consumers and investors, and a possible hit to sales and prices from the damage to its reputation.
The sources said the board was worried that, without boosting its finances, its credit ratings might be downgraded, leading to higher borrowing costs.
Credit rating agency Moody's last week cut the outlook on Volkswagen's debt to negative, while rival Fitch said it expected the emissions-cheating scandal to affect the entire automotive sector.
"The company has a fairly robust balance sheet -- but also has a very conservative approach to financing and its credit rating," Bernstein analyst Max Warburton said in a research note this week. "We believe that if the cash costs exceed 10 billion euros, a capital raise is highly likely."
No let-up
Warburton noted Volkswagen had 17.6 billion euros of cash at the end of the second quarter, plus 15 billion euros of marketable securities. But he also said it had suggested in the past that it needed a minimum of 10 billion euros in net cash to run the business.
Under existing company rules, Volkswagen could issue about 8 billion euros of preference shares, which do not carry voting rights, Warburton said. Beyond that level, it might have to issue ordinary shares, which could require the Piech-Porsche families and the German state of Lower Saxony -- the company's two largest shareholder groups -- to stump up cash.
Volkswagen, which is already implementing a 5 billion euro cost savings programme at its VW brand, imposed a hiring freeze at its financing arm and cut a shift at a German engine factory on Tuesday, in a sign it is bracing for a hit to business.
But the bad news keeps coming
France and Australia have joined other countries in launching investigations into Volkswagen, while an Italian consumer group has filed a class action lawsuit, accusing Volkswagen of deceiving car owners and potentially harming the environment.
A Texas county has also sued the company, accusing it of violating state environmental laws and seeking up to $25,000 in damages per violation per day.
New Chief Executive Matthias Mueller, a company veteran appointed on Friday to replace Winterkorn, is under huge pressure to get to grips with the scandal.
The company has hired U.S. law firm Jones Day to lead an external investigation, a source close to the matter has said. The external probe is a key demand of some investors who have been critical of the board's decision to continue appointing insiders to top jobs in the wake of the crisis.
Some analysts have suggested the company might sell off its trucks business or some brands such as Bugatti, Ducati and Lamborghini to raise money.
