November 26, 2008 / 8:02 AM / in 10 years

WRAPUP 2-Toyota debt rating cut, Suzuki holds out hope for GM

* Fitch cuts Toyota credit rating, shares fall 4.6 pct

* Suzuki CEO says GM bankruptcy “100 pct” impossible

* Mazda to idle Japan factory for two days next month (Adds credit default swaps move)

By Chang-Ran Kim, Asia autos correspondent

TOKYO, Nov 26 (Reuters) - Toyota Motor Corp (7203.T) had its top-notch credit ratings cut for the first time in a decade, hitting its shares and raising borrowing costs as an unprecedented slowdown reshapes the global auto industry.

Fitch Ratings on Wednesday downgraded Toyota’s long-term foreign and local debt ratings to AA from AAA, with a negative outlook, saying the company needed to review its global investments, product mix and speed of expansion to address the challenges it faces. [ID:nWNA0387]

“The negative developments in the industry are so substantial and fundamental that even the strongest player — Toyota — can no longer support an ‘AAA’ rating,” said Fitch Director Tatsuya Mizuno.

Sales in the United States and Europe have plunged as access to credit dried up, with the slowdown spreading to China, India, Russia and other markets on which automakers had placed their last hopes for near-term growth.

“It’s impossible to tell where demand will go next year and beyond,” Suzuki Motor Corp (7269.T) Chief Executive Osamu Suzuki said at a car launch in Tokyo on Wednesday.

“If there’s a market that’s not being affected by the United States, it’s not on this planet.”

In the latest evidence of slowing demand in emerging markets, Toyota is expecting next year’s vehicle sales in Russia to fall below this year’s level, Japan’s Kyodo news agency reported, citing Tadashi Arashima, the head of Toyota’s European operations. [ID:nT107295]


The yen’s strength against the dollar and most other currencies is dealing a double blow to Japanese carmakers, which have slashed their profit forecasts in the past month.

Toyota, the world’s largest automaker, had consolidated debt of 12.2 trillion yen ($128 billion) as of March, according to Fitch.

It remains the only automaker with the top Triple-A rating from Standard & Poor’s and Moody’s Investors Service, which was the last ratings firm to cut Toyota, in 1998.

The cost of protection against a default in Toyota’s debt rose after the Fitch downgrade, with five-year credit default swaps TOYC5YUSAC=GF widening by 10 basis points to 180. That means an investor would pay $180,000 a year for protection against a default in $10 million of Toyota’s underlying debt.

Shares in Toyota fell 4.6 percent in Tokyo, underperforming the transport equipment index .ITEQP.T and weighing on the broader market .N225.


While the lower rating will boost borrowing costs at Toyota, U.S. rivals General Motors Corp (GM.N), Ford Motor Co (F.N) and Chrysler LLC [CBS.UL] are in far worse positions.

The Big Three, long reliant on gas-guzzling light trucks for most of their profits, are falling deeper into junk status as they seek a government bailout to ride out the worst U.S. car market in a generation.

GM Chief Executive Rick Wagoner has warned the U.S. economy could face a “catastrophic collapse” without a rescue plan in a bid to convince lawmakers that bankruptcy was not an option.

Congressional leaders have given the Detroit automakers until next month to make their case for a rescue to show that they have business plans that can keep them out of bankruptcy.

The head of Suzuki Motor, a former GM affiliate whose partnership with the U.S. automaker spans 27 years, said he was convinced GM would avoid a Chapter 11 bankruptcy filing.

“I believe it’s 100 percent outside the realm of possibility,” Suzuki told reporters at the launch of the Alto Lapin minicar in Tokyo.

“I believe in him (Wagoner) and I think he’ll pull through.”

GM last week sold its remaining 3 percent stake in Suzuki back to the Japanese small-car maker as it scraped around for non-essential assets to sell.

Suzuki said his company would continue to work with GM on the development of future safety and environmental technologies. They have more than 10 ongoing projects including Suzuki’s production of Opel brand cars and joint ownership of several factories in the Americas.

Suzuki repeated, however, that he was open to working with any number of carmakers in future, stressing a capital alliance was not a pre-requisite for cooperation.

Suzuki co-develops diesel engines with Italy’s Fiat SpA FIA.MI and builds cars for Nissan Motor Co (7201.T) and Mazda Motor Corp (7261.T), among others.

Mazda, meanwhile, said it would suspend production at a Japanese factory that builds the Mazda3 and Mazda6 models, for two days next month, in line with a decision to reduce domestic production by 73,000 units between October and March. ($1=95.10 Yen) (Additional reporting by Yumiko Nishitani in TOKYO and Rafael Nam in HONG KONG; Editing by Lincoln Feast)

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