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Rating Action:

Moody's downgrades Toyota Motor and affiliates to Aa3; remain on review for possible downgrade

 The document has been translated in other languages

28 Jun 2011

Tokyo, June 28, 2011 -- Moody's Japan K.K. has today downgraded to Aa3 from Aa2 the senior unsecured long-term ratings on Toyota Motor Corporation (Toyota) and its supported subsidiaries. The ratings also remain on review for possible further downgrade.

The ratings on the following entities are affected:

Toyota Motor Corporation

Toyota Financial Services Corporation

Toyota Finance Australia Limited

Toyota Credit Canada Inc.

Toyota Motor Finance (Netherlands) B.V.

Toyota Finance Corporation

Toyota Finance New Zealand Limited

Toyota Financial Services (S. Africa) (Pty)

RATING RATIONALE

The downgrade reflects Moody's concern that it would take some time for Toyota to recover its previous strong profitability, and its competitive strength will remain under pressure for a prolonged period in view of challenging market conditions.

Moody's also continues its review of Toyota's ratings for possible further downgrade because its final ratings incorporate one notch of support from the country's banks and government, which are themselves under review for possible downgrade.

If these bank and sovereign ratings are downgraded, Japan's support system for corporates would be negatively impacted.

At the same time, the Aa3 ratings incorporate the faster-than-expected recovery in Toyota's production levels following supply chain disruptions and power shortages because of the March 11 earthquake.

And Moody's believes Toyota's strong ability to reduce its cost base will continue to mitigate to some extent the negative market environment.

Returning to Moody's concerns, we anticipate that Toyota's profit recovery in the period towards FYE 3/2013 will not be as strong as preferred because of its weakening market shares in various regions worldwide, the strong yen (now 80-85 yen per dollar), and high raw material prices.

Moody's expects Toyota will gradually improve its operating profit margin (OPM; excluding its finance business) to 3-5 % in FYE 3/2013, but it may take some time to regain its strong profitability, that is more than 5% OPM (excluding finance business) on a sustainable basis.

This expected prolonged period of low profitability is not appropriate for strong Aa credits, which should instead show characteristics such as high and stable profitability when compared to the industry average, in addition to leading positions in their core businesses, and strong cash flow generation and healthy balance sheets.

Another concern for Moody's is -- as mentioned -- the weakening in its market positions in various regions, such as the US, Europe, and China. Specifically, Moody's is concerned because of the following challenges:

(1) FX rate fluctuations can negatively impact its competitive strength and the profitability of its export business. Toyota's reliance on its exports is notably higher than its rated Japanese peers.

(2) The competitive climate has become more intense due to the success of Korean automakers, the revival of US makers, and the growing momentum of German makers. In particular, in the lower end segment, Moody's understands that Toyota's strategic expansion has been slower than its rivals.

At the same time, Moody's expects Toyota to introduce new model line-ups for its key models in the coming few years and to support its market shares with these models.

Toyota also has strength in fuel-efficient vehicles, a segment in which every car maker needs to both increase their sales portions and profitability.

Moody's continues to consider that the diversity -- from the views of geography and products -- of Toyota's portfolio, its strong balance sheet, and abundant holdings of cash and marketable securities support its current ratings.

Toyota's strong net cash position (excluding its finance segment) works as a financial cushion in a severe economic downturn or in other instances. In this regard, although questions over the safety of some of its models are now manageable, there is still uncertainty about litigation costs. However, under the current situation, Moody's believes that the company can absorb such costs with its current cash position.

The principal methodology used in rating this issuer was "Global Automobile Manufacturer Industry", published on September 30, 2010, and available on www.moodys.co.jp.

Toyota Motor Corporation, headquartered in Toyota City, is Japan's biggest automotive manufacturer.

Moody's will host three teleconferences for further discussion of these points:

The first teleconference -- which will be conducted in Japanese -- will begin at 16:00 Tokyo time on Wednesday, June 29.

The second and the third teleconferences -- which will be conducted in English -- will begin at 18:00 and at 23:00 Tokyo time respectively on Wednesday, June 29.

To register and for additional information, visit http://www.moodys.com/eventslist.aspx.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's information.

Measures taken to ensure the quality of this information include use of public information, reviews by a third party and verification by the lead analyst.

Moody's considers the quality of information available on the issuer or obligations satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Credit ratings are Moody's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. Moody's defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by Moody's in any form or manner whatsoever. The credit risk of an issuer or its obligations is assessed based on information received from the issuer or from public sources. Moody's may change the rating when it deems necessary. Moody's may also withdraw the rating due to insufficient information, or for other reasons.

Moody's Japan K.K. is a credit rating agency registered with the Japan Financial Services Agency and its registration number is FSA Commissioner (Ratings) No. 2. The Financial Services Agency has not imposed any supervisory measures on Moody's Japan K.K. in the past year.

Please see ratings tab on the issuer/entity page on the Moody's website for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on the Moody's website for further information.

Please see the Credit Policy page on the Moody's website for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Tokyo
Tadashi Usui
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Shinsuke Tanimoto
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's Japan K.K.
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2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's downgrades Toyota Motor and affiliates to Aa3; remain on review for possible downgrade
No Related Data.
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