Toyota Credit Canada Inc. & Toyota Motor Corporation: Confirms at AAA & R-1 (high)

Kam Hon, Walter Schroeder /  416-593-5577 ext.2243 / e-mail: khon@dbrs.com

 

The above ratings of the Toyota Group of companies are confirmed as above, all with a Stable trend.  The confirmation recognizes that the balance sheet of the auto company continues to be debt free, net of cash and marketable securities, and all financial ratios are overwhelmingly strong. 

 

Toyota Motor Corporation (“Toyota” or “the Company”) borrows mainly through its captive finance company.  Stress tests show that even with ¥100 billion-¥200 billion continuing drops in operating cash flow, maintenance of current dividend, and capex at near record ¥1,000 billion levels, the Company can still finance most of the cash needs internally, and remain debt free.  This gives Toyota substantial flexibility, and unless major share repurchases are initiated or a takeover is made (this would be unusual for Toyota), the auto company should remain debt free.  However, the Company still faces two key challenges:  (1) The Company is highly sensitive to the foreign value of the yen.  Each ¥1 change in ¥/$ exchange rate results in a ¥20 billion variance in operating income.  (In 2001-2002, the devaluation of the yen helped income by ¥410 billion.)  (2) The weak Japanese economy has resulted in annual sales decreases of one million units from the mid 1990s to a level near four million.  This weak growth in Toyota’s number one market has hurt profitability.

 

 

Dominion Bond Rating Service Limited (DBRS) has published a full report that provides additional analytical detail.  To see this report, please click on http://www.dbrs.com/web/sentry?COMP=2900&DocId=113444 and http://www.dbrs.com/web/sentry?COMP=2900&DocId=113445.  If you do not have access to this document, please contact us at info@dbrs.com.