(Adds detail from statement)
FRANKFURT, June 26 (Reuters) - Credit rating agency Fitch said on Thursday it had assigned an A+ senior unsecured rating and an F1 short-term rating to German carmaker Volkswagen , with a long-term negative outlook.
"The outlook reflects the expected reduction in cash generation during the upcoming model replacement phase and an unfavourable hedging position," Fitch said in a statement.
Volkswagen's profits tumbled by more than two thirds in the first quarter of this year, hammered by a weak dollar and spending on new models, but Chief Executive Bernd Pischetsrieder has said he expects new products to "reverse the picture" in 2004.
Fitch said VW would have to boost its falling market share and translate that into a substantial improvement in operating margins and cash flow generation in order to maintain the rating.
It also said that a potential increase in VW's stake in truckmaker Scania would be a threat to the group's liquidity base.
Sweden's Volvo has to sell its 45-percent stake in Scania for regulatory reasons by early next year, and Pischetsrieder has said VW is keeping its options open on whether to sell off its existing stake in Scania or buy more.