S&P lowered the company's rating on long-term debt to A- the fourth-lowest investment grade, from A, and said another cut of as much as two notches is possible.
"VW has demonstrated material deficiencies in its management and governance and general risk-management framework," Alex Herbert, a London-based analyst at S&P, said in a statement. "VW's internal controls have been shown to be inadequate in preventing or identifying alleged illegal behavior" and the potential for other violations “represents a significant reputational and financial risk."
S&P put Volkswagen on watch for a potential downgrade on Sept. 22 following revelations that a line of the carmaker's diesel-powered cars had software installed that was used to fool U.S. emissions testers. As many as 11 million vehicles worldwide may have to be fixed to remove the so-called defeat device. The manufacturer's debt was upgraded to A in September 2014. Its top rating from S&P was AA- the fourth-highest grade, which it received in 1991, according to data compiled by Bloomberg.
Volkswagen has yet to determine the full cost of the scandal. The company has set aside 6.5 billion euros ($7.4 billion) for repairs and compensation to customers, but has said that won't be enough. Among lawsuits and regulatory penalties, the U.S. could fine VW as much as $7.4 billion, Sanford C. Bernstein Ltd. estimates.
More than 250 lawsuits have been filed against VW in the U.S. Autonews/Bloomberg