Fitch Ratings said Tuesday that it downgraded Toyota Motor Corp.'s (TM) long-term foreign and local currency Issuer Default ratings, or IDRs, and senior unsecured debt ratings to 'A+' from 'AA', citing long term industry concerns. The outlook remains negative.
Meanwhile, the agency affirmed Toyota's Short-term foreign and local currency IDRs at 'F1+'. Notes rated by Fitch issued by companies within the Toyota group, such as Toyota Motor Credit Corp., have also been downgraded to 'A+' from 'AA'.
According to Fitch, even though Toyota remains the strongest player in the industry, its recent operating performance, strategic decision-making and management reaction to the crisis have been less impressive than its peers. Meanwhile, Honda Motor Co. Ltd. (HMC) has benefited from its focus on smaller cars and motorcycles while taking swifter action to cut costs, with which the difference in credit quality between the two companies has lessened, the agency noted.
Jeong Min Pak, Director in the agency's Asia-Pacific Corporates team, stated, "Fundamentals in the automobile industry are likely to remain weak in the medium-term, making it difficult for automakers to regain levels of profitability reached in the easy-credit-fuelled boom which came to an end in Q408. Additionally, in the wake of the downturn in the automobile sector, the fundamental structural changes that are taking place and the evident ongoing uncertainty, Fitch considers that the industry can no longer support a rating in the 'AA' category, which is more consistent with industries - such as utilities - that exhibit materially greater cash flow and operating stability."
Impacted by the economic downturn and the strong Japanese Yen, Toyota's earnings sharply deteriorated during the last two quarters of financial year ended March 2009, Fitch said. The company, among the Japanese makers, was especially hit hard by the current crisis, mainly due to its reduced focus on small passenger cars, higher proportion of export shipments from domestic facilities, and recent aggressive expansion, which resulted in a 386 billion Yen operating loss in the non-financial services division in the year. Toyota's financial services division was also affected by the decline in auto sales, as wel as higher allowance for credit and residual value losses.
Fitch noted that it recognizes the company's willingness to shift its strategy, however, there have been no specific details on restructuring plans as yet. The agency said it believes it may take several years for Toyota to approach previous levels of profitability, unless it takes swift actions to reduce costs and restructure its production facilities and product portfolio.
In addition, the strong Yen continues to be a concern although it has recently been relatively stable, together with further risks such as the potential disruption to the supply chain in the US following the bankruptcy of GM/Chrysler.
According to the agency, negative rating factors would include ongoing low profitability due to continuation of very weak current market conditions for a longer-than-expected period, and the the continuation of negative free cash flow for more than two years, among others.
TM closed Tuesday's regular trading session at $75.53, up $0.04 or 0.05%, on a volume of 694 thousand shares.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.