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Recently, Fitch Ratings downgraded Toyota Motor Corporation’s (NYSE:TM) debt owing to the company’s structural shortcomings mostly related to currency fluctuations. Fitch also lowered Toyota Motor's senior unsecured debt and its long-term foreign and local currency issuer default ratings to “A” from “A+” issuer. However, the ratings agency maintained its “Stable” outlook on the company.

The most crucial reason for the downgrade was the company’s expansive exposure to foreign currency fluctuations. A large portion of its products (approximately 40% of its global production) are manufactured in Japan, out of which almost half is exported. This makes the company largely vulnerable to currency fluctuations compared to its major competitors worldwide. Moreover, Toyota’s sluggish pace of improvement despite the strong auto industry recovery is also responsible for the downgrade.

Japan-based Toyota Motor is the leading automaker in the world in terms of sales and production. Its product portfolio consists of a wide range of models from passenger cars, minivans and trucks as well as related parts and accessories. The company’s operations are classified into three segments: Automotives, Financial Services and All Other.

In the last reported quarter, Toyota earned a profit of ¥1.16 billion ($14.21 million) or ¥0.37 per share, down from ¥190.47 billion ($2.33 billion) or ¥60.74 per share a year ago. Revenues in the quarter dipped 29.4% to ¥3.44 trillion ($42.15 billion), due to a 33% fall in global vehicle sales to 1.22 million units.

The sharp fall in profit was attributable to a substantial decline in vehicle sales all over the world, especially in North America and Europe due to supply chain issues arising from the earthquake and tsunami in Japan on March 11.

In Asia, the company managed to maintain a level of vehicle sales similar to the previous year led by strong sales in Indonesia. However, currency fluctuations had a negative impact on the company’s profit.

Source: Toyota Faces Fitch Credit Downgrade