When the U.S. catches a cold these days, it seems global blue-chip companies are getting sick. One such firm - the world's second-largest automaker Toyota Motor Corp. - is feeling the blues as it forecasted that it's on pace to register its first operating loss since World War II. One major reason the Japanese automaker sees the loss for the fiscal year ended March 31 is the drastic decline in demand for cars in the U.S. and the rest of the world. The forecast triggered debt rating agency Moody's Investor Services to review Toyota's ratings for a possible downgrade.
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Toyota is predicting an operating loss of 150 billion yen ($1.7 billion), for the fiscal year ending March 31. That's a drastic difference to a 2.27 trillion profit in the same year-ago period. In the U.S., Toyota expects sales of 250,000 units lower than previously expected. Americans are holding off buying cars as the U.S. unemployment rate rises and credit tightens even though the price of gas has fallen over the last two months.
The downturn has prompted Moody's to review its "Aaa" on $19 billion for debt for a possible downgrade. A rating cut would cost Toyota more money in higher borrowing costs, especially in this economic climate when financial institutions are more leery about lending money.
Like its peers in the industry, Toyota is tightening its belt, cutting contract jobs, production and executive pay including board-members' bonuses. While these cuts are not as drastic as the Big Three's restructurings, the changes show how much the auto industry is suffering. The only problem these days it seems is that Toyota has become so big that its problems have become the world's. - Gerald Magpily
See Bloomberg article
