Moody's cuts Toyota's credit rating

Moody’s downgraded Toyota to Aa2 from Aa1, and maintained a negative outlook on the company, indicating that it believed Toyota’s troubles, which have been aggravated by still-sluggish economic conditions, would linger. “The rating action reflects the ongoing low level of profitability evident at Toyota, and which we expect to continue for an extended period,” said Tadashi Usui, a senior analyst at Moody’s, in a note announcing the downgrade.

Toyota has withdrawn millions of cars globally, mainly over problems with sticking accelerator pedals, in recent months. The recall has severely tarnished the company’s image, costing it billions of dollars in lost sales and repair bills and drawing a string of lawsuits.

Toyota also agreed to pay a $16.4 billion fine, one of the heaviest fines imposed on a car manufacturer in the United States, for concealing information related to the recall.

The product quality and recall challenges, which have been largely centered on the United States, “have created significant uncertainty over whether it can maintain the pricing power it has historically achieved over its rivals,” Usui wrote. “Such a situation — coupled with an expected sluggish recovery in global car sales in 2010 and persistent overcapacity in the industry — means a material risk that its operating profit margin will remain well below that appropriate for its rating level until 2012 at the earliest and possibly beyond.”

Moody’s said Toyota’s strong balance sheet, its large cash reserves and the leading positions it continues to hold in its key markets would help Toyota remain the leading global auto maker in coming years.