Fitch lowers rating on Toyota due to market slump

Tue Nov 25, 2008 11:22 PM EST

business, japan, as, toyota, fitch-ratings

Fitch Ratings cut Toyota's top-notch credit rating on Wednesday, blaming the world 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 again in the next year or two.

The automaker's shares dropped 4.6 percent in Tokyo to close at 2,985 yen.

"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 when 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 percent 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. 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, Toyota's efficient production methods should produce cost cuts, Fitch said.