Toyota's cars seem to have a universal appeal

Toyota played down any problems, saying that sales were "healthy" and that it still expected annual revenues and profits to grow from the previous year.

It was not the only carmaker to disappoint the market, and Germany's BMW also said profits missed targets.

Firms are being hit by high raw material costs and currency volatility.

Not alone

Last week saw a slew of earnings reports from car firms in Europe and Japan.

The one uniting factor was that competition amongst the producers and high steel prices were squeezing margins, while consumers were proving difficult to lure into dealerships.

Toyota seems to be doing better than most, even though its operating profit dropped by almost 10% to 405.13bn yen (�2bn; $3.6bn) in the three months running from April through June.

I think we're putting up a good fight Takeshi Suzuki, Toyota

Net profit slid 7% to 266.9bn, though analysts said that without the cost of R&D and new plants in countries including Poland and Mexico there would have been solid growth.

The effects of slowing consumer demand were evident, however, and Toyota said the average cost of incentives offered per vehicle rose to $1,090 during the quarter.

"I think we're putting up a good fight," said senior managing director Takeshi Suzuki, adding that the company was confident that incentives would not have to rise too much in the future.

Toyota forecast that it will sell 7.97 million vehicles worldwide in the 12 months running from April 2005 to April 2006.

'Record levels'

Times were tougher for German car firm BMW, which reported that pre-tax profit dropped to 916m euros (�618,000; $1.1bn) in the second quarter ending 30 June from 1.1bn a year earlier.

"The negative currency impact caused by unfavourable transfer exchange rates, the additional cost of raw materials and more intense competition meant that the record levels achieved in the previous year could not be repeated," BMW said.

It warned that the effect of currency fluctuations would worsen as the year went on.

Chief financial officer Stefan Krause also said that raw material costs would dent profits to the tune of a "low triple-digit-million" figure.