Toyota's Bonds Losing Their Sparkle

Toyota Motor Corp. (TM) has stumbled out of the gate this year as it battles General Motors Corp. (GM) for the title of world’s largest automaker, corporate bond research firm Gimme Credit LLC writes in its latest note on the auto sector.

Sales are slowing down in its top markets of Japan and the United States. A big bet on its Tundra pickup truck is failing to pan out as planned amid higher gas prices. And material costs are rising as the yen maintains its strength.

When its fiscal 2008 ended in March, Toyota reported record sales and profits. In its first quarter of fiscal 2009, net revenues dropped 4.7%, operating profit slumped 38.9% and financial services profits were nearly halved.

Toyota is getting aggressive with its cost cutting to adjust to the tougher environment, but its “weak first quarter results will make it very difficult for Toyota to meet its 2009 financial targets,” Gimme Credit analyst Craig Hutson writes.

“We would not be a buyer of the bonds, primarily because we see little opportunity for spread tightening.”