Moody's downgrades Toyota's credit rating, profit concerns over product quality

16:59, April 22, 2010      

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The international ratings agency Moody's Investors Service said Thursday it has downgraded its credit rating for Toyota Motor Corp. because of concerns over product quality weakening the firm's capacity to repay long-term debt.

Moody's downgraded Toyota and its subsidiaries' rating to Aa2 from Aa1 saying that the beleaguered automaker's profits may suffer following its recent vehicle recalls.

''The rating action reflects the ongoing low level of profitability evident at Toyota,'' said Tadashi Usui, Moody's Vice President.

"Its product quality and recall challenges -- largely centered in the US -- have created significant uncertainty over whether it can maintain the pricing power it has historically achieved over its rivals," he added.

Usui also highlighted the fact that Toyota's profitability will certainly be impacted by costly litigation fees associated with the recalls and combined with market expectations for sluggish sales in the auto sector this year said that Toyota's operating profit would be below "that appropriate for its rating level until 2012 at the earliest and possibly beyond."

Earlier this week Toyota agreed to pay a 16.4 million U.S. dollar fine for hiding, for at least four months, accelerator pedal defects blamed in more than 50 deaths in the U.S.

Additionally Toyota has recently widened a recall of two sports utility vehicles -- the Lexus GX 460 and some models of the Land Cruiser Prado -- to 34,000 units worldwide to reduce the risk of potential rollover accidents when cornering at high speeds.



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