Moody's Cuts Toyota Rating
04-22-10, 04:14 PM
#1
Moody's Cuts Toyota Rating
TOKYO (AFP) – Ratings agency Moody's on Thursday downgraded beleaguered automaker Toyota, saying uncertainty over "product quality" following mass recalls raised questions over its profitability.
Toyota's first downgrade since it recalled around ten million vehicles worldwide due to accelerator and brake defects "reflects the ongoing low level of profitability evident at Toyota", Moody's said.
"It's (Toyota's) product quality and recall challenges -- largely centred in the US -- have created significant uncertainty over whether it can maintain the pricing power it has historically achieved over its rivals," said Tadashi Usui, a Moody's senior analyst.
The agency downgraded Toyota and its subsidiaries to a negative outlook and a rating of Aa2, the third-highest on a scale of 19, meaning that while its capacity to repay debt had weakened it remained very strong. The rating matches the firm's lowest ever level.
However, profitability was expected to be dented in coming years by "litigation costs associated with the recall", said Usui.
There was "a real risk that its product quality problems have eroded significantly and permanently its (Toyota's) historical advantages in pricing power," he added.
Combined with an expected sluggish recovery in auto sales this year, costs associated with the recalls created a risk that Toyota's operating profit will be below "that appropriate for its rating level until 2012 at the earliest and possibly beyond," he said.
Shares in the embattled automaker closed down 1.5 percent to 3,595 yen in Tokyo trade Thursday following the announcement.
The downgrade follows Toyota's move Tuesday to widen its latest global safety recall, a day after paying a record US fine that analysts say leaves the Japanese giant more vulnerable as it battles a slew of lawsuits.
In the latest blow it widened a recall of two sports utility vehicles -- the Lexus GX 460 and some models of the Land Cruiser Prado -- to 34,000 units worldwide to reduce the risk of potential rollover accidents.
On Monday the company agreed to pay a 16.4-million-dollar fine, the largest for an automaker in the United States, for hiding for at least four months accelerator pedal defects blamed in more than 50 US deaths.
Toyota faces at least 97 US lawsuits seeking damages for injury or death linked to sudden acceleration and 138 class action lawsuits from American customers suing to recoup losses in the resale value of Toyota vehicles.
It overtook General Motors in 2008 as the world's top automaker. But the safety issues have raised questions about whether it sacrificed its legendary quality to become number one.
The latest recall was triggered last week after US magazine Consumer Reports gave the Lexus GX 460 a rare "Don't Buy: Safety Risk" rating, warning it could lose stability at high speed.
Toyota has suspended global sales and production of the SUV and promised to fix the vehicle stability control (VSC) system that is meant to prevent loss of wheel traction during turns.
Moody's said Thursday's downgrade announcement concluded a review that began in February.
It added, however, that it expects Toyota to remain the world's leading automaker in coming years with a debt-capital ratio of 17 percent and large cash reserves as of the end of 2009.
Moody's is the first agency to downgrade Toyota following the recalls, with competitors Fitch and Standard & Poor's reporting they may consider such a measure in the future.
http://news.yahoo.com/s/afp/20100422...yratingstoyota
Toyota's first downgrade since it recalled around ten million vehicles worldwide due to accelerator and brake defects "reflects the ongoing low level of profitability evident at Toyota", Moody's said.
"It's (Toyota's) product quality and recall challenges -- largely centred in the US -- have created significant uncertainty over whether it can maintain the pricing power it has historically achieved over its rivals," said Tadashi Usui, a Moody's senior analyst.
The agency downgraded Toyota and its subsidiaries to a negative outlook and a rating of Aa2, the third-highest on a scale of 19, meaning that while its capacity to repay debt had weakened it remained very strong. The rating matches the firm's lowest ever level.
However, profitability was expected to be dented in coming years by "litigation costs associated with the recall", said Usui.
There was "a real risk that its product quality problems have eroded significantly and permanently its (Toyota's) historical advantages in pricing power," he added.
Combined with an expected sluggish recovery in auto sales this year, costs associated with the recalls created a risk that Toyota's operating profit will be below "that appropriate for its rating level until 2012 at the earliest and possibly beyond," he said.
Shares in the embattled automaker closed down 1.5 percent to 3,595 yen in Tokyo trade Thursday following the announcement.
The downgrade follows Toyota's move Tuesday to widen its latest global safety recall, a day after paying a record US fine that analysts say leaves the Japanese giant more vulnerable as it battles a slew of lawsuits.
In the latest blow it widened a recall of two sports utility vehicles -- the Lexus GX 460 and some models of the Land Cruiser Prado -- to 34,000 units worldwide to reduce the risk of potential rollover accidents.
On Monday the company agreed to pay a 16.4-million-dollar fine, the largest for an automaker in the United States, for hiding for at least four months accelerator pedal defects blamed in more than 50 US deaths.
Toyota faces at least 97 US lawsuits seeking damages for injury or death linked to sudden acceleration and 138 class action lawsuits from American customers suing to recoup losses in the resale value of Toyota vehicles.
It overtook General Motors in 2008 as the world's top automaker. But the safety issues have raised questions about whether it sacrificed its legendary quality to become number one.
The latest recall was triggered last week after US magazine Consumer Reports gave the Lexus GX 460 a rare "Don't Buy: Safety Risk" rating, warning it could lose stability at high speed.
Toyota has suspended global sales and production of the SUV and promised to fix the vehicle stability control (VSC) system that is meant to prevent loss of wheel traction during turns.
Moody's said Thursday's downgrade announcement concluded a review that began in February.
It added, however, that it expects Toyota to remain the world's leading automaker in coming years with a debt-capital ratio of 17 percent and large cash reserves as of the end of 2009.
Moody's is the first agency to downgrade Toyota following the recalls, with competitors Fitch and Standard & Poor's reporting they may consider such a measure in the future.
http://news.yahoo.com/s/afp/20100422...yratingstoyota
04-23-10, 09:44 AM
#2
Lexus Fanatic
It's mostly a non-event.
"The agency downgraded Toyota and its subsidiaries to a negative outlook and a rating of Aa2, the third-highest on a scale of 19, meaning that while its capacity to repay debt had weakened it remained very strong. The rating matches the firm's lowest ever level."
Toyota needs to continue to focus on the real and significant issues.
"The agency downgraded Toyota and its subsidiaries to a negative outlook and a rating of Aa2, the third-highest on a scale of 19, meaning that while its capacity to repay debt had weakened it remained very strong. The rating matches the firm's lowest ever level."
Toyota needs to continue to focus on the real and significant issues.
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