TOKYO - Moody's Investors Service on Friday downgraded its credit rating on Toyota Motor Corp., saying that even the long profitable Japanese auto giant faced a prolonged slump.
Moody's announced the decision hours before the world's top-selling automaker was set to reveal its third-quarter earnings, which are expected to be bleak due to the economic crisis.
The agency cut Toyota's long-term debt rating from the highest possible "Aaa" to the second-highest "Aa1." It said the outlook was negative, meaning further downgrades are possible.
Moody's said it took the decision because of the "significantly impaired state of profitability at Toyota, due in turn to the severe nature of market conditions surrounding the global auto industry."
With global auto sales slumping, the yen soaring and raw material prices unstable, Toyota "is unlikely to meaningfully improve its operating performance" in the financial year ending in March 2010, a statement said.
Toyota had enjoyed booming profits for years due in no small part to the popularity of its smaller and environmentally friendly cars in North America.
But Toyota and its rivals at home and abroad have been slashing thousands of jobs since late last year as sales plunge worldwide.
However, Moody's said that Toyota was still better positioned than many automakers due to its abundant liquidity and traditionally prudent business strategies.
"Toyota has an extremely high degree of financial flexibility, meaning it should be able to withstand any difficulties the industry may experience," it said.