(Press release provided by Moody's Investors Service)
TOKYO, Aug 23 - Moody's Investors Service on Friday assigned a long-term rating of Aa1 to Toyota Motor Corp's 150 billion yen ($1.25 billion) bonds due 2012.
Toyota's Aa1 long-term rating is based on Moody's expectation that the company will maintain a globally competitive cost position, strong and consistent financial fundamentals - even during periods of economic recession - and a highly attractive product line.
This should allow Toyota to generate substantial free cash flow and maintain strong debt protection measures. Toyota will also continue to maintain a strong capital structure and a high degree of balance sheet liquidity.
Toyota has shown a consistent ability to maintain a strong balance sheet, bolstered by large cash positions and low debt levels. Financial flexibility is gained through cash holdings and good access to debt and equity markets.
Furthermore, the introduction of new products and expanding markets translate into steady earnings growth for Toyota.
However, Toyota faces several challenges, including a strong yen, increased competition in a relatively weak domestic market, a competitive European market and the need for large investments to develop more ecologically friendly vehicles and alternatives to gas-powered engines.
Moody's considers that competitive pressures are likely to continue, as the outlook for auto demand in the major markets is deteriorating due to depressed consumer sentiment.
In spite of this, Toyota's intermediate-term line-up of new models will perform well. The increasing breadth of the company's product line, its strong brand image, and its formidable R&D program should support a successful new product strategy over the long term.
Moreover, Moody's expects ongoing initiatives in the areas of platform integration, rationalisation of the distribution network and integration of product design and assembly activities to yield further reductions in both fixed and variable costs for the company.
Toyota Motor Corporation, headquartered in Toyota City, Japan, is the world's third largest automobile manufacturer. ($1=119.79 yen)