Sunday, November 30, 2008

Toyota's Credit Rating Reduced

The downturn in the global automotive industry is becoming so severe that Toyota now has to face a credit downgrade from AAA to AA by Fitch Ratings. Global slumps in demand as well as adverse exchange rates are impacting the company with increases in material costs coming down the pipeline. Toyota has noted that for every 1 Yen decrease in the Yen's value to the Dollar and Euro trims operating profit by 40 Billion Yen for the Dollar and 6 Billion for the Euro. Toyota's profits have decreased by 2/3 in the past year as they are expected to bring in 5.5 Billion in net profits. Toyota depends heavily on the U.S. market where half of their operating profit is made. They have relied heavily on taking market share from SUV's and trucks and have based their growth strategy on this gain. This may be halted for the next 2-3 years as the slump is expected to continue. This year alone has seen an operating loss of 34.6 Billion Yen in North America. Industrywide analysis shows a decrease to 11.7 Million cars sold from 14 Million forecasted and Hyundai says they believe the U.S. could fall to 10 Million cars sold.

Japanese carmakers are still in a much better position than the U.S. big three. For the past 20 years Japan's business model has included a fuel efficient culture while U.S. manufacturers have insisted on sitting on SUV's and pickup trucks to bring profits. After weak periods in demand for these auto's a spike in demand has the big 3 making profits while smaller more fuel efficient cars are foregone. This cycle may be ending now. The big 3 did not reinvest their profits to include more fuel efficient cars and this time they may not be able to pull it together after years of very little planning. Car makers need to look to Toyota's vision and change their core thinking in envisioning a world with limited resources.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aybXO4OangM0&refer=home

http://www.cnn.com/2008/BUSINESS/11/24/japan.auto.industry/index.html

http://www.businessweek.com/ap/financialnews/D94MC3QO0.htm

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