Instant view: Moody's cuts Toyota to Aa2, outlook negative

TOKYO (Reuters) - Ratings agency Moody's Investors Service downgraded Toyota Motor Corp (7203.T) to Aa2 from Aa1 on Thursday and said the rating came with a negative outlook.

"The rating action reflects the ongoing low level of profitability evident at Toyota, and which we expect to continue for an extended period," Tadashi Usui, a Moody's vice president and senior analyst, said in a statement.

Usui said the company's product quality and recall challenges had created "significant uncertainty" over whether it could maintain the pricing power it has achieved over its rivals.

KEY POINTS:

-- Toyota has issued a slew of recalls, and the incidents have tarnished its once market-leading reputation for quality.

-- Toyota estimated in February that the recalls would cost it $2 billion for the fiscal year that ended in March.

-- It has recalled more vehicles since then, and most analysts believe the costs will be significantly higher.

COMMENTARY:

HIROAKI KURAMOCHI, CHIEF EQUITY MARKETING OFFICER, TOKAI TOKYO SECURITIES

"The market reaction is limited for now, though I thought the news might have a bit more impact.

"Still, investors have already factored in the issues surrounding the recalls and the stock price has dropped dramatically accordingly."

TOSHIRO YOSHINAGA, ANALYST, AIZAWA SECURITIES

"The recall problem may continue until the U.S. mid-term election, and I agree that Toyota has not been good at handling the problem. But I don't think the downgrade would have a serious impact on Toyota."

MITSUSHIGE AKINO, CHIEF FUND MANAGER, ICHIYOSHI INVESTMENT MANAGEMENT

"Market worries and unfavorable factors about Toyota have pretty much been factored in during the course of its share price decline that started in January.

"The downgrade is reflecting the concerns market players felt back in January in a delayed manner. I don't expect this to have a significant impact on Toyota shares.

"It is the automaker's business performance, especially sales and market share figures in the United States, that drive Toyota's share price.

"It would be a real trouble if a new problem arises for Toyota, if 'bashing' of the car maker gains momentum, and its sales and market share take a beating. But that's not what's happening at the moment."

YOSHIHIKO TABEI, CHIEF ANALYST, KAZAKA SECURITIES

"Toyota shares are likely to fall further today following the news of the downgrade. Toyota shares react sharply to bad news these days.

"At a recent investor meeting and on other occasions Toyota has not yet presented clear, convincing plans (about how to rebuild the firm) after the recall and other issues. While its sales are recovering, a sense of uncertainty remains."

(Reporting by Hugh Lawson)