Business

Toyota faces ratings cut on concerns over profit

  • 6 April 2011
  • From the section Business
Workers give the final check to Toyota cars
Image caption Japanese car manufacturers have been amongst the businesses hardest hit by the earthquake

Toyota's credit rating has been put under review by the ratings agency Moody's, which said it may downgrade the Japanese car giant.

Moody's said the company's profits are likely to be hit by the impact of the 11 March earthquake and tsunami.

Earlier on Wednesday, Toyota said that production at most of its domestic factories will remain suspended until at least next week.

Production at its plants has been halted since the crisis began.

"There will be no resumption of production at most of our domestic factories next week," a Toyota spokeswoman said.

Moody's expects the delays to last even longer.

"Limited production re-commenced at some of the factories at the end of March, but normal production cannot be expected for many months," the agency said in its statement.

It says the company is also likely to hit by the impact of the devastation on Japan's overall economy.

"Toyota's dependence on the Japanese market is still high, at about 27%," the agency said.

"Expected weak consumer sentiment may have a negative impact on domestic demand that ensuing replacement demand may not be able to offset," it added.

"Quality problems"

While the suspension of production at its domestic factories is grabbing all the headlines, Moody's said that issues with quality control will also hurt profits.

Toyota has recalled almost 12 million cars worldwide in the past 18 months due to various safety concerns.

The agency said that as the company invests to put in place better safety and testing procedures its margins are likely to squeeze even further.

"Toyota's operating margins are thin in comparison to its peers'," it said.

"The company is trying to recover from the quality problems it suffered last year, so its quality-related expenditures remain high," Moody's added.

The spate of recalls has not only hit the company financially but has also dented its image.

Moody's said the recalls may have affected the perception of Toyota's quality.

It warned that even though Toyota's credentials still remain high, the company will find it tough to get back its lost market share.

"Restoring its dominance in many of the world's major markets will be difficult in light of rising competition,"

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