Moody's Mulls Toyota Downgrade
Not very unexpectedly, ratings agency Moody’s is looking into taking it’s view of Toyota’s long-term debt down a notch. Usually reliable Reuters says that Moody’s “put its credit rating on Toyota Motor Corp on review for a possible downgrade.” For the obvious reasons, namely disruptions to Toyota’s supply chain from the March 11 earthquake and tsunami and subsequent power cuts. Even if bond ratings put you to sleep, you might be interested in Moody’s views on the resumption on normal car production.
Moody’s says that the disaster has disrupted shipments of key components and that “normal production cannot be expected for many months.”
According to Marketwatch, Toyota’s Aa2 long-term senior unsecured debt could go to Aa3. Which is still better than most. Toyota’s stellar “Prime-1” short-term rating was affirmed and will not be affected.
Also not surprisingly, Dow Jones reports (via The Nikkei [sub]) that Moody’s is keeping an eye on Nissan and Honda. In an email to Dow Jones, Moody’s senior analyst Tadashi Usui said that “given the current ratings, Nissan (review for upgrade) and Honda (stable), and the earnings recovery of both companies before the quake, the impact on these ratings will be smaller than on Toyota’s.” With Toyota owning half of the Japanese market, and with much more production in Japan than Nissan and Honda, Toyota takes the full brunt of the disaster.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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the earthquake/tsunami caused damages and power outages are but minor bugs compared to the potential of a nuclear Godzilla permanently poisoning the place.
1. The problem of Toyota began long before earthquake/tsunami, it's its paper thin profits from operation (even before the rise of yen last year). Toyota has the GM sickness, chasing volume and sacrificing profit. This might not matter much a couple of years ago but it is hardly normal time. 2. More bad news for Toyota: in Japan, Honda Fit outsold Prius for the 2nd time in the last 3 months with 22,284 units sold in March and the sales only fell 3% y/y.(Overall Japanese domestic car sales dropped 37%.) It also takes the lead in the year-to-date ranking with 54,033 registrations. The Toyota Prius is a distant #2 with 19,702 sold (-45%) and YTD at 52,523 units.
Moody's is concerned that an expected improvement in profitability may be hampered or delayed by not just the negative impact of the earthquake, but also the other challenges Toyota faces. It would focus on the firm's ability to quickly restore production in Japan and to maintain its market positions, as well as how quickly the auto maker is able to improve its profitability despite the impact of the disasters.