Steane Klose | Feb 9, 2009

Financial research and analysis company, Moody Investor Services, has downgraded Toyota's credit rating from Aaa status to Aa1. This decision came just hours before Toyota revealed its third-quarter earnings to the market on Friday, which showed a 28 percent fall in revenues.

According to Moody's, Toyota's "susceptibility to long-term risks appears somewhat greater", thanks to expectations of a prolonged slide in profitability due to the collapse of global automotive sales. But let's put this in context: until now, Toyota was the only non-financial based Japanese company to hold an Aaa rating.


This negative outlook comes as Toyota looks to slow production to get control of its inventory and after posting its first-ever loss in the company’s history. Global sales fell four percent last year, with significant falls in the latter part of the year; conditions are not expected to improve in the medium term.

Japan's strong Yen is also inflicting damage on Toyota's bottom line. Its profits are being devoured by the local currency's rampant strength against other currencies of Toyota's trading partners. In one move to help revive profit, Akio Toyoda, soon to be Toyota president, is planning to put the broom through Toyota's upper management.

At a time when automotive manufacturers the world over are facing the toughest times many have ever seen, and with most in far worse shape than Toyota, further downgrades of 'the Big T' are nevertheless possible.

Certainly, however, Toyota is better placed than most automakers to weather the global recession thanks to its capital reserves and what Moody's described as its 'abundant' liquidity. As the world’s largest automotive manufacturer, you can bet Toyota knows how to ride this storm out.

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