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Fitch Ratings has today placed Toyota Motor Corporation's (Toyota) 'A+' Long-term foreign and local currency Issuer Default ratings (IDR) and senior unsecured ratings, 'F1+' Short-term foreign and local currency IDRs on Rating Watch Negative (RWN). The rating actions have been triggered by Toyota's decision to suspend sales and production of eight models in the US market that were recently involved in a safety-related recall."The recalls and sales and production suspension cast a negative light on Toyota's reputation for quality, just as the company emerges from an unprecedented downturn in the auto industry. This could hamper the company's potential sales and profitability recovery, especially in the US market," says Jeong Min Pak, Senior Director in Fitch's Asia-Pacific Corporates team. "At present, the impact of Toyota's actions on its credit profile is difficult to quantify given the uncertainty as to the length of the suspension, the extent of measures needed to resolve the problems, and the longer term effect of these actions on its brand equity and competitive position," says Ms. Pak. Fitch will resolve the RWN status when there is more clarity on these issues.
On 26 January 2010, Toyota announced that it was suspending sales for eight models recalled the previous week for problems with the pedal mechanism. The company also announced its decision to halt production of these models for a week. The most recent recall of 2.3 million vehicles comes on the heels of another separate recall of 4.2 million vehicles in November 2009 for pedal-related issues. The eight models accounted for 57% of Toyota's US sales in 2009, selling over 1 million units. A one-week stoppage would affect roughly 20,000 units of sales.
Of the major Japanese automakers, Toyota was the hardest hit by the economic downturn, with its product focus shifting away from small fuel efficient vehicles, higher exposure to a strong Yen (given a higher proportion of exports out of Japan) and aggressive expansion.
However, Fitch had recently revised the Outlook for Toyota's Long-term IDR to Stable from Negative as a result of the company's cost-cutting efforts and expectations of a modest recovery in global automobile demand, particularly in the US. (For more information please refer to the rating action commentary entitled, "Fitch Revises Outlook on Toyota to Stable; Affirms IDR at 'A+'", dated January 18 2010).
Toyota Motor Corporation is the largest automobile manufacturer in Japan, and is also the world's largest in terms of vehicles sold. The company sold a total of 7.6 million vehicles in FYE09.
Applicable Criteria available on Fitch's website at www.fitchratings.com: "Corporate Rating Methodology", dated 24 November 2009.
Fitch POLSKA SA
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