Fitch Ratings cut Toyota’s top-notch credit rating on Wednesday, blaming the world’s auto market slump and surging yen — the latest sign that even Japan’s top automaker is suffering from the global slowdown.
Fitch also cited high material costs as another challenge as it lowered its rating on Toyota Motor Corp. two notches to “AA” from “AAA,” with a negative outlook, meaning the rating could be lowered in the next year or two.
The automaker’s shares dropped nearly 5% in Tokyo morning trading.
While Toyota’s Detroit-based rivals scramble to avoid bankruptcy and plead for a bailout from the U.S. government, the Japanese auto maker is grappling with its own mounting problems.
Toyota earlier this month reported a 69% drop in fiscal second-quarter profit and cut its full-year forecast by more than half. Toyota recently announced production cuts in the U.S in response to a steep decline in sales in its largest and most profitable market. The company’s shares are down about 45% from their high for the year.
“In these times, no company is immune,” Toyota spokeswoman Mira Sleilati said Wednesday, responding to news of the downgrade.
“Toyota is suffering severely from the ongoing turmoil in the global automotive sector,” said Tatsuya Mizuno, a Fitch director.
The move could raise borrowing costs for Toyota as investors and lenders typically want to be compensated more as credit ratings decline.
But Toyota spokesman Paul Nolasco said Fitch’s downgrade won’t hurt the company’s business.
“We believe investors abroad and here fully understand our business strength and solid capital footing,” he said.
The simultaneous slowdown in the major auto markets and the appreciation of the yen, which erodes the overseas earnings of Japanese exporters, were among the “multiple negative developments” battering Toyota’s earnings, said Mizuno.
“In Fitch’s view, the negative developments in the industry are so substantial and fundamental, that even the strongest player — Toyota — can no longer support a ’AAA’ rating,” he said.
Toyota still has top credit rating from other international services Moody’s and Standard & Poor’s. “AAA” shows exceptional strong capacity for payment of financial commitments, while “AA” shows very high credit quality.
Compared to their money-losing American counterparts, Japanese automakers are faring better in riding out damage from the global slowdown and the recent jump in gas prices because of their reputation for fuel-efficient models.
Still, Toyota, which makes the Prius gas-electric hybrid and Camry sedan, expects its net profit for this fiscal year to nose-dive to 550 billion yen ($5.5 billion), less than a third of last year’s and its lowest annual earnings in eight years. For the July-September quarter, Toyota’s profit plunged 69% from the same period the previous year.
General Motors Corp., Ford Motor Co. and Chrysler LLC, Detroit’s “Big Three” automakers, are in far deeper trouble as they struggle to win a bailout from Congress to avoid bankruptcy.
Toyota depends on the U.S. market for about half of its operating profit. And that market’s troubles may last two to three years, heralding greater risks for even Toyota, according to Fitch.
The slump in the U.S. market is likely to put the brakes on Toyota’s growth because its strategy has focused on grabbing market share from American automakers in pickup trucks and sport utility vehicles, and growth in emerging markets may not be enough to offset the U.S. declines, it said.
On the plus side, its efficient production methods should produce cost cuts, Fitch said.
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ENERGY WATCH:
UNLESS CAR COMPANIES ARE POSITIONED TO SERVE THE NEEDS OF THE SUPER-RICH, THEY’RE ALL ON THE ROPES DURING THE CURRENT GLOBAL ECONOMIC CRISIS. BUT EVEN COMPANIES LIKE MASERATI, ROLLS ROYCE AND BENTLEY HAVE BEEN SENT REELING.
IF THE U.S. HAD BEEN PRODUCING AN ADDITIONAL 1.2 MILLION BARRELS OF DOMESTIC OIL PD FROM 2005 ONWARD, (BOTH DESIRABLE AND EASILY ACHIEVABLE), MUCH OF THIS YEAR’S ENERGY SPIKE WOULD HAVE BEEN AVOIDED. BUT A SMALL GROUP OF ECO-ZEALOTS DELIBERATELY STEERED AMERICA INTO THIS ABYSS. AND FOR THEM, THE RUINOUS EFFECT OF THEIR ACTIONS IS A POINT OF PRIDE. NOW THEY’RE TRYING TO TELL US THAT “GREEN” MACHINES ARE THE ANSWER. SO THEY’RE WRONG AGAIN. WITH NATIONAL GASOLINE PRICES NOW SITTING AT APPROXIMATELY $1.80 PER, NO RATIONAL CONSUMER IS THE LEAST BIT INTERESTED IN DEALING WITH THE ABSURD UP FRONT EXPENSE AND OBVIOUS LIMITATIONS OF AN ELECTRIC CAR. IT’S TIME TO TAKE BACK AMERICA FROM THE ECO-NAZIS, AND ALLOW THE SILENT MAJORITY TO ONCE AGAIN DETERMINE THE PATH THAT THIS NATION FOLLOWS. 2010 IS WHEN THE NEXT HOUSE OF REPRESENTATATIVES IS UP FOR GRABS. AND THE AMERICAN PEOPLE ARE ITCHING TO THROW THE CURRENT SET OF BUMS OUT ON THE STREET. AND QUITE HONESTLY, I THINK BARACK OBAMA WOULD BE VERY COMFORTABLE WORKING IN ACCORD WITH A CONSERVATIVE HOUSE AND SENATE.
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