Honda Motor Co.’s credit rating outlook was dropped from stable to negative by Moody’s Investors Service over concern the automaker faces challenges in regaining its market position due to growing competition, Bloomberg reported today.
Honda’s reputation is still good, but competition in the auto market is getting tougher in the last few years due to rivals improving their product quality and brand acceptance, Moody’s wrote in a report released earlier today.
Honda’s rating could be reduced if it is unable to restore profitability and regain market share, which took a significant hit from a series of negative one-time events that have delayed the automaker in the recovery in its profits, Moody’s said in the report.
Honda’s senior unsecured long-term rating was maintained by Moody’s at A1, four spots below the top investment grade, Bloomberg reported.
Honda suffered more severe and longer production disruptions from two natural disasters -- the March 11 Japan earthquake and the floods in Thailand last fall -- compared with its rivals, Toyota Motor and Nissan Motor Co.
It expects unit sales for 2012 to decrease by 10 percent compared to last year, Moody’s said. The outlook change contrasts with Honda President Takanobu Ito, who said last month he expects record vehicle sales next fiscal year amid a “complete rebound,” Bloomberg reported.
The automaker’s rating could be cut if adjusted earnings before interest, tax and amortization margin stays below 4 percent by the fiscal year ending March 2013, Moody’s said.
Honda estimated the floods in Thailand will cost the company 110 billion yen ($1.43 billion) this fiscal year, leading the company to lower its forecast for operating profit, according to Bloomberg.
Honda posted U.S. sales of 1.15 million units in 2011, a 7 percent decrease from 2010 in an overall market that gained 10 percent.