Downgrade threat hangs over Toyota

April 6, 2011

, TOKYO, Apr 6 – Toyota faced the prospect of a Moody\’s downgrade to its long-term credit rating Wednesday after Japan\’s devastating earthquake and tsunami hit supply chains and forced the closure of plants.

Ratings agency Moody\’s said it placed Toyota\’s Aa2 rating, the third highest on a scale of 19, on review for a possible downgrade, one month after Standard & Poor\’s cut its rating on the automaker.

Moody\’s cited the impact of the earthquake and the devastating tsunami it unleashed, which led to power shortages and supply chain disruptions that forced the closure of Toyota\’s plants in Japan.

"Toyota\’s financial and operating performance will worsen in the aftermath of the March 11 earthquake and tsunami and the resulting supply chain disruptions," it said in a report Wednesday.

The agency warned that Toyota\’s production would not return to normal for "months" and cited the automaker\’s dependence on a Japanese market expected to be hit by weak consumer sentiment following the disasters.

While Toyota has since resumed production of its Prius and some Lexus hybrid models after the magnitude 9.0 earthquake — the largest ever recorded in Japan — the supply of around 500 key components has been hit, Moody\’s said.

"The shortage of even one component can significantly disrupt production," Moody\’s said. "Normal production cannot be expected for many months."

Toyota on Wednesday said the outlook for restarting production at all of its 16 idle plants in Japan was unclear. Three production lines are currently operating.

Spokeswoman Shiori Hashimoto denied a report in the Nikkei newspaper that the automaker will restart most of its assembly plants in the country as early as next week.

"It is not so optimistic at this moment," Hashimoto said.

However, she added that production of Corolla Axio sedans and the Raum subcompact at a subsidiary plant in Sagamihara, just west of Tokyo, would resume on April 11.

Toyota shares closed 0.15 percent higher at 3,265 in Tokyo Wednesday.

The automaker said the production of around 260,000 units has been hit due to supply chain problems from March 14 to April 8.

The impact has been felt worldwide. Toyota said it would be forced to slow production at some US plants due to a shortage of parts from Japan.

Moody\’s said the automaker was particularly exposed in terms of its thin operating margins in comparison to its peers, partly due to quality-related expenditures as it looks to recover from the impact of millions of recalls.

The agency said that a declining share in major markets and higher spending on customer incentives indicated weaker consumer perceptions of the brand\’s quality, which would be exacerbated by the lack of availability of key models.

The latest setback for Toyota comes as the world\’s biggest automaker attempts to rebuild a reputation damaged by millions of recalls worldwide over safety issues.

Previously lauded for its safety, Toyota became mired in crisis when it recalled nearly nine million autos between late 2009 and February last year due to brake and accelerator defects alleged to have caused dozens of deaths.

The crisis dealt a huge blow to the firm\’s reputation, prompting predictions it would lose market share as it tightened its recall policy to encompass around 16 million vehicles between late 2009 and January this year.


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