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Tokyo: Toyota Motor Corporation, the carmaker with the best credit, may have its AAA rating cut by Fitch Ratings, the first such downgrade in 10 years, as the auto industry faces "unprecedented challenges".
The carmaker was placed on "Rating Watch Negative", Fitch said in a statement yesterday as it embarks on a review over the next several weeks. Honda Motor Company's outlook was also cut to "stable" from "positive". Fitch reiterated its A+ rating for the smaller carmaker.
A lower debt rating would raise borrowing costs for Toyota, potentially hindering its ability to offer interest-free loans to boost sales in the US. The automaker slashed its profit forecast 56 per cent earlier this month after higher fuel costs and the credit crunch pushed industrywide October US sales to the lowest level since 1983.
"Toyota makes most of its money in America and most of their money within that on sales of larger vehicles, which have fallen very, very seriously," said Paul Heaton, who manages $500 million in Japanese equities at Pyrford International Limited in London. "Even though Toyota may be selling small cars, it doesn't make a lot of profit, and that's probably what Fitch is rightly concerned about."
The rating cut would be the company's first since Moody's Investors Service reduced its long-term debt rating from Aaa to Aa1 in 1998. Moody's raised the company back up to Aaa in 2003. Standard & Poor's has rated the carmaker AAA since 1985. Toyota spokes-man Hideaki Homma declined to comment on the possible rating change.
Stock drops
Toyota fell 0.3 per cent to 3,130 yen at the close of trading in Tokyo. The stock has dropped 48 per cent this year, set for the worst annual performance since at least 1975.
Fitch will "consider the extent to which the company's very strong financial flexibility may be affected negatively by the weak global market conditions, especially in the US, given its significance in terms of Toyota's earnings and cash flow generation," Tatsuya Mizuno, a director in Fitch's Corporate team, said in the statement.
Asia's largest carmaker, leading General Motors in global auto sales this year, earlier this month cut its earnings target for the ending March 31 to 550 billion yen down from an earlier goal of 1.25 trillion yen.
Toyota has 317 billion yen in debt coming due this year, and owes 2.56 trillion yen next year, according to Bloomberg data.
Moody's has no plans to revise its rating on Toyota, said Junichi Yamaki, the analyst who covers the carmaker. Standard and Poor's auto analyst Osamu Koba-yashi did not answer his office phone.
The yen's 15 per cent rise against the dollar and 32 per cent gain against the euro this year have also squeezed profits at Toyota and other Japanese automakers.
Toyota based its forecasts on 103 yen to the dollar and 146 yen to the euro, compared with its previous estimate of 105 yen and 161 yen, respectively.
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