Moody’s cut its credit rating on Toyota Motor Corp by one notch, predicting a long slump in profitability and potential litigation costs for a massive recall that has tarnished the Japanese auto maker’s brand.
Moody’s Investors Service lowered its senior unsecured rating on the world’s largest auto maker to Aa2, its third-highest ranking, from Aa1. It said the outlook was negative, leaving open the possibility of a further downgrade in the future.
A ratings downgrade could make it more costly for Toyota to secure funding and service its debt. Toyota has about $36 billion in outstanding debt, most of which matures between 2010 and 2012, according to analysts.
Moody’s said in a release that Toyota faces considerable challenges to boosting profitability, including sluggish market conditions, overcapacity and the need to use unusually large incentives to support sales.
It also cited the risk that “product quality problems have eroded significantly and permanently its historical advantages in pricing power” in predicting that profits would not return to a level commensurate with its credit rating until at least 2012. Additionally, it could face significant costs to settle lawsuits from the recall.
Shares of Toyota closed down 1.4 per cent at 3,600 yen.
“The downgrade is reflecting the concerns car makers felt in January in a delayed manner. I don’t expect this to have a significant impact on Toyota shares,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.