TOKYO - In the latest blow to Toyota Motor Corp., ratings agency Standard & Poor's on Friday lowered its bond rating the world's largest auto maker, citing what it said was its "weak profitability."
S&P's downgrade of Toyota's long-term corporate credit and senior unsecured-debt ratings comes as the giant Japanese auto maker is trying to rebuild its reputation after a bruising series of recalls almost exactly a year ago in which it recalled some 10 million vehicles world-wide, reported The Wall Street Journal.
"The downgrade reflects our opinion that Toyota's profitability is unlikely to recover in the next one to two years to a level that we view as appropriate for the rating," S&P said in a statement. It lowered its rating to AA minus from AA.
The lowered credit rating could reduce the profit Toyota earns by raising its costs of borrowing, for instance, to finance loans by car buyers, especially in the U.S. While the lowered credit rating is probably not enough to crimp Toyota's car sales in the U.S. or elsewhere, it will almost certainly weigh on the company's profit margins.
As recently as February 3, S&P had reaffirmed its AA rating on Toyota. Two years ago, in February of 2009, the company lost its top-notch 'AAA' rating from S&P—which Toyota had maintained since 1985—when it was downgraded to AA+. In May of that year, it was further downgraded by S&P to AA. That was before the recall crisis began to snowball but after Toyota had felt the brunt of the 2008 global recession.
S&P said "because the company's profitability is still weak, its pace of recovery is slower than those of Japanese peers, and its profitability might remain under pressure from higher raw material prices and gasoline prices as well as the strong yen."
S&P said the outlook on Toyota's new rating is stable, saying that the car maker is likely to maintain a gradual recovery in its profitability and cited the company's "minimal financial risk profile." It added that the company has a "very strong" capital structure and "exceptional liquidity." The ratings agency last downgraded its rating on Toyota in May 2009, when it lowered its rating from AA plus to AA.
On Friday, S&P also lowered its rating on Denso Corp., a Japanese automobile components maker in which Toyota holds a 22.5% stake.
"It is regrettable that S&P lowered our rating today. However, we prioritize gaining trust from our customers and our management will make an utmost effort so that our rating will be raised again," a Toyota spokeswoman said.
Toyota reported on Feb. 8 that its October-December profit slid 39% to 93.63 billion yen ($1.14 billion) from 153.22 billion yen in the same period a year earlier on the back of lower sales volumes in several key markets and persistent strength in the Japanese yen.
At the same time the company predicted its profit would jump in the current fiscal year ending in March thanks to strong sales overseas and extensive cost-cutting. The auto maker boosted its profit projection to 490 billion yen, up 40% from its previous estimate in November and more than double the 209 billion yen it earned last year.
Despite the lowered rating, Toyota is still seen as more credit-worthy than its peers. S&P has Honda Motor Co. Ltd.'s long-term credit rating at A plus, and Nissan Motor Co. Ltd. is at triple-B plus.
Moody's Investors Service maintains an Aa2 rating on Toyota, following a downgrade in April 2010 when it said that the global vehicle recalls raised questions about the health of its profits until 2012 at the earliest.
As it tries to rebuild its reputation, the company has implemented a number of new quality and safety-related reforms to its operations, even as it denies its vehicles are prone to defective parts or engineering flaws.
In the past six months, the Japanese auto maker has launched, unannounced, several low-profile initiatives, including a global computer database to track vehicle repairs and cut reporting times about customer complaints from months to days. It also has extended deployment of rapid response teams to determine the causes of accidents beyond the U.S. and Japan to other major markets, including China and Europe.
