Toyota's Debt Rating Lowered

Moody's said quality problems could hurt long term profits.

Moody's Investors Service on April 22 lowered its main debt rating for Toyota Motor Corp., saying the carmaker's well-publicized quality problems could hurt profits over the long term. The rating agency cut its senior unsecured rating on Toyota from Aa1 to Aa2, with a negative outlook. The cuts also apply to a number of its subsidiaries.

Such ratings can affect how much it costs for companies to borrow from banks and other lenders. But the world's largest carmaker said the cut was unlikely to affect its business because it still has an A-level rating.

"The ratings downgrade by Moody's is very regrettable, but with the trust of customers as our top priority, management will put in maximum effort so that the rating is raised once again," said a Toyota spokeswoman, who asked that her name not be used due to company policy.

In addition to a series of global recalls on some of its top brands, Toyota faces at least 100 lawsuits in the U.S. for injuries or deaths attributed to sudden acceleration and is the subject of a congressional investigation.

Moody's said in a statement that the ratings cut reflected Toyota's low level of profitability, which it expected to continue until at least 2012.

"Its product quality and recall challenges -- largely centered in the U.S. -- have created significant uncertainty over whether it can maintain the pricing power it has historically achieved over its rivals," Moody's Senior Analyst Tadashi Usui said.

In another blow, Toyota's position in the Forbes ranking of the world's leading companies released on April 21 nosedived to 360th from third last year.

Toyota's sales have increased recently in the U.S., but it has offered unprecedented incentives to lure customers despite the safety recalls, including discounted financing and free maintenance for returning customers. The company has traditionally limited such promotions.

Despite its current safety troubles, Moody's emphasized Toyota's strong balance sheet and large cash reserves.

Toyota would have a lower rating, it said, but was propped up by the assumption that if Toyota were to need outside assistance, it would be readily available from banks and other sources within Japan.

The agency said in February that it was reviewing Toyota for a possible downgrade.

Toyota still expects to post a net profit of 80 billion yen ($860 million) for the fiscal year that ended March 31, a massive turnaround from a net loss the previous year of 437 billion yen. It is due to report earnings May 11.

Copyright 2010 The Associated Press.

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