The Japanese carmaker, whose models include the Corolla subcompact and luxury Lexus, said Tuesday it expects a 450 billion yen ($4.7 billion) loss for the fiscal year through March 2010, better than the 550 billion yen loss initially projected.
The results for the April-June quarter showed that Toyota Motor Corp. is getting some traction from aggressive cost-cutting and Japanese government incentives that have boosted sales of green cars like the Prius. Analysts surveyed by Thomson Reuters had forecast a fiscal first quarter loss of 210 billion yen.
Toyota, which dethroned General Motors Corp. as the world's top selling automaker in 2008, raised its global vehicle sales forecast for the fiscal year by 100,000 to 6.6 million vehicles. The increase reflected the success of the Prius in Japan while sales forecasts for Europe and North America were unchanged.
The growing popularity of environment-friendly vehicles has given Toyota some respite from the auto meltdown. The Prius gas-electric hybrid has been the top-selling model in Japan for two months straight, the first time a hybrid clinched that spot, and is reportedly on track to take that spot again for July. Toyota says it has received 245,000 orders for the Prius in Japan since it went on sale in May.
The Japanese government recently made hybrids tax-free and began a cash-for-clunkers program, helping boost sales of all ecological vehicles, including rival Honda Motor Co.'s Insight.
Mamoru Katou, auto analyst at Tokai Tokyo Research, said Toyota's new forecasts for were extremely cautious as it had the potential to break even, and may end up selling thousands of more cars in the U.S. and Japan than its plan.
"Toyota is sticking with a goal it knows it can achieve," he said.
Earlier this year, Toyota chose Akio Toyoda, the grandson of the automaker's founder, as its new president in an effort to use his charisma to bring the ranks of workers, dealers and suppliers together.
Toyoda has said the automaker will be making more managerial decisions by region to stay nimble despite its size but has yet to give details of a turnaround strategy.
The better sales forecast is still markedly below the 7.57 million vehicles Toyota sold worldwide for the fiscal year ended March, showing how far Toyota has to go to staunch the red ink.
Toyota sold 1.4 million vehicles worldwide during the quarter, a decrease of 785,000 from a year earlier. Quarterly sales dropped 38.3 percent to 3.836 trillion yen ($40.4 billion) as vehicle sales slipped in almost all regions, including North America, Europe, Japan and the rest of Asia.
Other Japanese automakers have also reported better-than-expected earnings, with No. 2 Honda continuing to stay in the black, bucking expectations for losses. Analysts say Toyota, because of its bigger size, may need longer for a full recovery.
Tatsuo Yoshida, auto analyst at UBS Securities Japan, said a solid recovery can come only when the global economy is growing and people start buying more cars.
"The damage was great at Toyota because it was heading toward aggressive expansion with its foot slammed on the accelerator," he said, comparing the global financial crisis to a car wreck.
Last fiscal year Toyota posted its worst loss in its seven-decade history, running up 436.94 billion yen of red ink. For the April-June quarter last year, it had a 353.6 billion yen profit.
Toyota had appeared almost unstoppable before the global financial crisis, with sales booming on its reputation for mileage and quality.
It planned to sell 9.85 million vehicles in calendar 2008, but annual sales ended up dropping for the first time in a decade — to just short of 9 million vehicles as the crisis on Wall Street morphed into a global recession.
The automaker has aggressively cut costs to ride out the downturn — slashing jobs and production, trimming managerial pay, reducing investment and foregoing travel and other expenses.
Still, vehicle sales continued to suffer as the recession crushes demand.
Japan quarterly sales totaled 407,000 vehicles, down 105,000 from the previous year, while Toyota said it sold 387,000 vehicles in North America, down 342,000.
"Although we were able to make certain improvements in fixed cost and cost reduction efforts, the decline in vehicle sales and the appreciation of the Japanese yen had a severe impact on our earnings," said Toyota Senior Managing Director Takahiko Ijichi.
Toyota, based in Toyota city, central Japan, lost 140 billion yen during the quarter ended June 30 because of the appreciation of the yen. It lost another 650 billion yen in operating income because of miserable auto sales.
Results from other Japanese automakers have suggested the worst may be over.
Honda posted a 7.5 billion yen profit for the April-June period, and raised forecasts for the full year on optimism auto sales will improve.
Nissan Motor Co., the nation's third-biggest car maker, reported a smaller-than-expected 16.5 billion yen loss for April through June.
Toyota shares slipped 1.5 percent to 4,030 yen ($42) in Tokyo. Earnings were announced before trading ended.