Toyota's net profit fell to 290.7 billion yen ($2.75 billion) for the quarter that ended March 31, the company said Tuesday. Revenue, however, rose 4.2 percent to 4.88 trillion yen ($46.2 billion), as the company sold more of its cars and trucks.
In an attempt to gain a larger share of the world's auto market, Toyota has been sacrificing part of the profit margins it has posted in the last several years. Toyota has set a goal to capture 15 percent of the global car market in the next decade, compared with the 10 percent it has now, and has spent heavily on new factories in the United States, China and elsewhere.
"There's bound to be a pause as we invest more for expansion and R.& D. to secure future growth," Toyota's president, Fujio Cho, said on Tuesday, according to Reuters.
Toyota's profit was below analysts' forecasts, though still far better than the results posted by its top global rivals. General Motors, the world's largest car maker, reported a $1.1 billion loss for the same quarter, while Ford Motor saw its profit slip by a third.
In particular, Toyota has been on a roll in the United States, thanks in part to an effort in the last several years to expand its lineup with a series of small and inexpensive cars sold under the Scion brand. Demand has also been strong for Toyota's gasoline-electric hybrid sedan, the Prius.
Toyota's sales in the United States increased 14 percent for the first four months of the year from the same period a year earlier, raising the company's market share in the United States by more than one percentage point, to 13.3 percent, for the period. Toyota's sales performance in the United States is the exact reverse of the performances of G.M. and Ford, which have each seen their market share fall by more than a percentage point so far this year.
But Toyota has failed to transfer the strong growth in sales volume into improved profits. Toyota's operating profit fell 23 percent in the most recent quarter, to 383 billion yen ($3.63 billion), from 497.5 billion yen a year earlier.
One reason for the sinking profit was a decline in the dollar against the yen, which erodes the value of revenue earned in North America, Toyota's largest and most profitable market. Analysts figure Toyota loses about 20 billion yen ($189 million) in operating profit for every one-yen increase in the value of the Japanese currency against the dollar.
Near-record prices for steel have also weighed on Toyota and other automakers much of this year. At the same time, high gasoline prices have curbed demand for big trucks and sport utility vehicles, one of the most profitable segments.
High gas prices have helped Toyota sell more small cars, like the Corolla sedan and the compact cars in the Scion line. And sales of the gas-sipping Prius hybrid sedan have more than doubled in recent months compared with last year. But analysts say the added sales have not helped Toyota's bottom line as those vehicles tend to be less profitable than S.U.V.'s and big sedans.
"Even though Toyota's market share is growing fantastically, Toyota's profitability is actually in somewhat of a stagnant period," said Takaki Nakanishi, an auto analyst at UBS Securities Japan.
Toyota also continues to spend heavily to develop new models for foreign markets and expand production abroad. Toyota plans to open a pickup truck factory in Texas next year, its sixth North American assembly plant, and recently announced plans to build a factory in Russia. The investment is aimed at expanding sales abroad and helping Toyota better withstand adverse shifts in foreign exchange rates by reducing the need to export vehicles from factories in Japan.
Over all, Toyota's capital expenditures were 12 percent higher in the quarter just ended, at 379 billion yen ($3.6 billion), while spending on research and development rose by 9 percent, to 222 billion yen ($2.1 billion). The company plans to increase capital spending 15 percent for the financial year ending March 31, 2006, from the year just ended.
But Toyota's heavy investment outlays and its focus on smaller, less profitable vehicles raise questions about whether Toyota managers are more concerned with gaining market share than with increasing profits, said Mr. Nakanishi of UBS, who noted that Toyota's profit margin had fallen for each of the last three quarters.
Toyota does not make public profit forecasts, but Mr. Cho said the company expected profit for the fiscal year ending next March to be about the same as for the year just ended. For the year ended March 31, Toyota's net profit crept up 0.8 percent, to 1.17 trillion yen, while revenue increased 7.3 percent to 18.55 trillion yen.