Already slammed by the March 11th natural disaster that has left it struggling to resume normal production, Toyota may soon be hit with a ratings downgrade by Moody’s Investors Service.
Such a move could add to the maker’s costs at a time when it is struggling under the loss of hundreds of thousands of units of production. Even before last month’s earthquake and tsunami – and the subsequent Japanese nuclear crisis – senior Toyota officials were warning that they’d need to take aggressive steps to cut costs and boost profits.
Saying it will take “many months” to get the company’s operations back to normal, Moody’s issued a warning that it is giving serious consideration to a downgrade of the maker’s debt, which currently stands at Aa2, an investment grade that Detroit’s makers can only dream of achieving.
The ratings firm did note that it, “will also consider how quickly the company can improve its profitability despite the negative impact of the disasters.”
So far, however, the impact of the natural disaster and subsequent energy crisis has been devastating to Toyota, a spokeswoman confirming that as of April 8 the company will have lost 260,000 units of production due to the shutdown of its Japanese plants. The maker has also reduced production at some of its foreign-based plants, such as the Camry facility in the U.S.
It remains unclear when things will get back to normal, even though Toyota’s assembly lines were largely untouched by the disaster. The problem is that many suppliers have remained closed, while energy supplies are still uncertain, with rolling blackouts still affecting Japan.
So far, only two of Toyota’s 18 Japanese plants are running – and even then on reduced schedules. (The maker has put a priority on its high-demand Prius model, which just registered its 1 millionth sale in the U.S. Click Here for more on that story.) Limited production at a third line is expected to begin Monday, and various news reports from Japan indicate much or most of the maker’s Japanese production network could follow soon afterwards.
Nonetheless, industry officials don’t believe that even using overtime – when that becomes possible – Toyota will be able to recover much of the production lost over the last month. Deutsche Bank analysts have forecast that will leave the industry giant operating in the red for the first half of the fiscal year that began on March 1 – though DB expects all Japanese makers to be operating at a deficit for the first half.
That will come as a setback for the so-called “Global Vision” outlined by Toyota CEO Akio Toyoda just two days before the magnitude-9.0 earthquake struck off the northeast coast of Japan, triggering a chain of events that now appears likely to have killed at least 24,000. (Click Here for more on the Global Vision plan.)
In the U.S., shortages of Japanese-badged products are expected to worsen, AutoNation CEO Michael Jackson warning supplies could soon be cut in half.
That has led many dealers to raise prices, especially on popular models like the Prius, which is reportedly going for as much as $3,000 more than just a few months ago. Toyota itself plans to raise prices by more than 2% on May 1.
Meanwhile, investors have been pounding the carmaker in the wake of the ongoing setbacks. In Japan, Toyota shares have fallen 10% since March 11, closing Wednesday trading there at 3,265 yen, or $38, a share.
In the U.S., the maker has seen shares plunge from around $90 at the beginning of March to less than $78 in early Wednesday trading. It’s unclear whether a formal Moody’s downgrade would have an additional impact or if traders have already rolled that factor into their plans.
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