May 10, 2007 By Yuri Kageyama Ap Business Writer 4 min read

TOKYO (AP) – Just a few weeks after trumpeting that it would surpass GM as the world’s largest automaker this year, Toyota is signaling that it, too, is suffering from some of the troubles ailing its U.S. rivals. Toyota officials said Wednesday that auto sales will likely be flat this year in the key North American market, where higher gas prices, a housing slump and a slowing economy have tempered consumer spending.

To be sure, Toyota Motor Corp. is still outpacing rivals and still expects higher sales and profits. And some of the tempering of its profit growth is due to spending on quality controls, after suffering a surge in recalls that analysts say may be a byproduct of its recent aggressive growth efforts.

The Japanese automaker will also be investing in new plants to boost production, and research for new models – all factors pushing down profit growth, it said.

Toyota, which beat General Motors Corp. in worldwide vehicle production and sales in the first quarter for the first time ever, reported Wednesday a quarterly group profit of 440.1 billion yen ($3.67 billion), up 9 percent from 404 billion yen the same period the previous year.

But Toyota forecast a profit increase of 0.4 percent for the fiscal year through March 2008, which would be the smallest improvement for the company since seeing its profits slip in the fiscal year ending March 2002.

Analysts say Toyota’s slowing growth isn’t likely to stop it from overtaking GM to become the world’s No. 1 automaker – a title that technically hinges on worldwide vehicle production for an entire year.

Besides the litany of troubles affecting U.S. consumers, GM also has to contend with the perception that Toyota has more reliable and more fuel-efficient vehicles.

Detroit-based GM, the world’s largest automaker for the last 76 years, is seeing its U.S. market share shrink, and has announced a restructuring plan to stem billions in losses it racked up in 2005 and 2006. Earlier this month, GM reported a $62 million profit in the first quarter.

Meanwhile, Toyota’s sales have been surging, especially in North America and Europe, as soaring gas prices boost the appeal of its models, including gas-and-electric hybrids like the Prius.

Toyota said its group production totaled 2.37 million vehicles globally in the quarter through March, slightly more than the 2.34 million vehicles that GM said it produced around the world for the same period.

Toyota’s sales in the fiscal fourth quarter rose 10 percent to 6.3 trillion yen ($52.5 billion).

Shinya Naruse, auto analyst with Nomura Securities in Tokyo, said toppling GM in global vehicle production is just the latest in Toyota’s victories because it has already beaten GM in profits.

“But it is a very visible step, and it’s only a matter of time,” he said. “It’s difficult to give one explanation for Toyota’s success but it’s simply its ability to come up with attractive products that sell.”

Naruse notes that Toyota is not only performing well next to U.S. auto companies, including GM, Ford Motor Co. and the Chrysler unit of DaimlerChrysler AG, but also against Japanese rivals Honda Motor Co. and Nissan Motor Co.

Both Honda and Nissan saw a decline in profit in the latest quarter.

Toyota President Katsuaki Watanabe was typically understated when asked about the prospects of beating GM.

“Rather than think about other companies, I feel that we must do our utmost to satisfy customers around the world,” he said. “There is plenty left for us to do.”

He said he was worried about his workers becoming smug and stressed that he aims to boost sales in “every region” around the world.

“We aren’t just chasing numbers,” he told reporters at a Tokyo hotel. “We must continue to pursue better quality.”

Toyota is projecting profit for the fiscal year through March 2008 at 1.65 trillion yen ($13.8 billion), only slightly better than the 1.64 trillion yen ($13.7 billion) for the fiscal year ended March 31, when it lifted profit by a robust 20 percent from the previous year.

Toyota is expecting sales for the fiscal year through March 2008 at 25 trillion yen ($209 billion), up 4.4 percent from fiscal year 2006. Sales jumped 14 percent to 23.9 trillion yen ($199.5 billion) in the fiscal year ended March 31.

Toyota also expects to sell 8.89 million vehicles, up 4 percent from 8.5 million in the fiscal year just ended.

Toyota sold 2.35 million vehicles worldwide in the January-March period, surpassing the 2.266 million vehicles GM sold in the quarter.

GM sold 9.17 million vehicles in 2005, and 9.09 million last year. In 2006, Toyota’s global production was about 9 million vehicles, while GM and its affiliates produced 9.18 million vehicles worldwide.