S&P places Toyota and Group Suppliers on watch negative

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Increased concern over the potential negative impact on Toyota's business risk profile of unfolding developments related to recent quality issues.

We placed our 'AA' long-term ratings on Toyota Motor and related entities on CreditWatch with negative implications.

We also placed our ratings on Toyota group suppliers, Denso, Aisin, and Toyota Industries, on CreditWatch with negative implications due to their strong business ties with the automaker.

We aim to resolve the CreditWatch status by mid-May, incorporating ongoing developments related to the quality issue and the performance of the companies during the first quarter of calendar 2010.

Standard & Poor's Ratings Services today placed its 'AA' long-term corporate credit and senior unsecured debt ratings on Japan-based automaker Toyota Motor Corp. (Toyota) and a number of related entities, including Toyota Financial Services Corp. (TFS), Toyota Finance Corp., and Toyota Motor Credit Corp. (TMCC).

We also placed our long-term corporate credit ratings on Toyota group suppliers, Denso Corp. (Denso), Aisin Seiki Co. Ltd. (Aisin), and Toyota Industries Corp. (Toyota Industries) on CreditWatch with negative implications, as well as our 'A-1+' short-term rating on Toyota Industries. At the same time, we affirmed our short-term ratings on Toyota, Denso, and Aisin.

The CreditWatch placements reflect Standard & Poor's increased concern over the potential negative impact on Toyota's business risk profile of unfolding developments related to recent quality-related issues. A series of Toyota's recent quality-related issues, which started with unintended acceleration caused by non-genuine floor mats and followed by the January recall of the acceleration pedals, has now expanded to include negative publicity over customer complaints about the brake system for the Prius hybrid model, particularly in Japan and the US.

Standard & Poor's believes that these developments may affect the company's reputation for quality, weakening its competitive position. The ratings may be lowered if the likelihood increases that Toyota's brand image will be weakened by the ongoing series of events, negatively impacting the automaker's sales and business strategy in North America and other major regions over an extended period.

On Feb. 4, 2010, for the third time in the current fiscal year Toyota revised upward its earnings forecast for fiscal 2009 (ending March 31, 2010). The company now expects to report a net profit of JPY80 billion for the full fiscal year.

Toyota's own projection to return to profit after a major loss posted in the previous fiscal year incorporates a JPY170 billion to JPY180 billion negative impact on profit from the January recall. Standard & Poor's is of the opinion that

Toyota's financial profile has been in a recovery phase in tandem with its recovering profitability. Moreover, Toyota's continuing conservative financial policy should, to an extent, support the current ratings on the company.

As such, Standard & Poor's expects any potential downgrade to be limited to one notch. However, we may revise our view if the recall expands significantly, thereby increasing the company's financial burden, or if customer confidence deteriorates further.

Indeed, the potential negative impact from the Prius hybrid issue is still unknown and is yet to be reflected in Toyota's earnings forecast for fiscal 2009.

Although Standard & Poor's is of the opinion that recent quality issues will have only a limited impact on Toyota's financial risk profile, a weakening of its brand image could seriously affect the automaker's medium-term sales, as well as its business strategy in North America and other major regions.

Amid the current challenging operating environment for the global auto industry, competition remains increasingly fierce. Standard & Poor's will focus particularly closely on any possible medium-term impact on Toyota's earnings base and its competitive position.

We aim to resolve Toyota's CreditWatch status by mid-May, incorporating ongoing developments related to the quality issue and the performance of the company during the first quarter of calendar 2010.

The placement of the group suppliers on CreditWatch with negative implications reflects our concerns regarding a potential deterioration in their business profiles. Given their strong business ties with Toyota, we believe their business profiles are likely to be adversely affected if Toyota's brand image becomes tarnished and if its medium-term sales and business strategies are seriously impacted.

Moreover, the ratings on the suppliers incorporate the possibility of extraordinary support from Toyota in the case of serious financial stress, as well as ongoing operational benefits from their close relationship with Toyota.

We may also reassess the levels of possible extraordinary support from Toyota if its credit quality weakens materially as a result of current events. Based on the suppliers' recovering financial performances, however, we currently expect any potential downgrade to be limited to one notch.

We plan to resolve the CreditWatch status on the group suppliers by mid-May, incorporating ongoing developments related to the quality issue and their performance during the first quarter of calendar 2010.