Fitch Downgrades Toyota One Notch to 'A'

Sept. 12, 2011
Toyota's 'profitability improvement' is slowest among big three Japanese automakers, ratings agency said.

Ratings agency Fitch on Sept. 12 said it had downgraded the long-term debt of Japan's biggest automaker Toyota by one notch to "A," citing its exposure to a strong yen in another blow to the firm.

Toyota is "the most exposed among the big three Japanese automakers to FX movements and its profitability improvement was slowest among its Japanese competitors post the recent economic crisis even after disregarding the impact of product recalls in the past two years," Fitch said.

It said the outlook was stable. The rating is the sixth-highest score on Fitch's scale of 22.

The yen has soared to post-war highs against the dollar in recent weeks, and on Monday hit a 10-year high against the beleaguered euro as investors flock to the safe haven currency amid fears over eurozone debt and a global slowdown. A strong yen erodes the repatriated profits of Japan's exporters while making it harder for goods produced domestically to be cost competitive. This has spurred concerns of a potential "hollowing-out" of Japanese industry as more production, and jobs, are shifted overseas.

Fitch said Toyota's "inherent structural weakness" made it vulnerable to volatility in the foreign exchange markets.

"Fitch estimates that Japan accounts for about 40% of Toyota's global production, and Toyota exports around 50% of its Japanese production, which is higher compared with its Japanese competitors."

It added that while Toyota was trying to reduce its dependence on domestic production,"it has few near-term options to offset the negative impact of a stronger yen."

Given Toyota's established manufacturing presence in Japan, shifting production overseas would take time and be difficult to implement, it said.

Toyota is recovering from the impact of millions of safety recalls and the March 11 earthquake and tsunami, which shattered component supply chains and forced it to temporarily shut plants and cut production.

Concerns about a double-dip global recession are also mounting, while competition from the likes of Hyundai, Volkswagen and U.S. automakers is increasing.

Toyota sold 8.42 million vehicles globally in 2010, just ahead of General Motors' 8.39 million, but analysts say the impact of the March disasters will see it cede its position as the world's biggest carmaker.

It was downgraded by Moody's in June, following a similar move by Standard & Poor's in March, before the earthquake.

Copyright Agence France-Presse, 2011

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