Toyota Motor, the Japanese titan that is on the cusp of becoming the world’s largest carmaker, has suffered a severe blow to quarterly earnings as American and European markets crumple under high petrol prices and economic strain.

The company was also forced to admit that it is reviewing a key target for next year, which would have taken the company’s annual vehicle sales above 10 million units.

Though bad for Toyota and for the Japanese auto sector, the 28.1 per cent year-on-year dip in net profits for the first quarter were better than many investors had assumed.

Net profits between April and June was 353.66 billion yen (£1.65 billion), down from a record 491.5 billion yen a year ago.

Analysts particularly welcomed Toyota’s decision to keep its full-year profits forecast unchanged even though that forecast, if met, will mark the Japanese group’s first drop in annual earnings for nine years.

Some analysts believe that Toyota’s weaker performance in the US, where sales dropped 4.3 per cent, might have been avoidable. Like Nissan, which also revealed a sharp fall in profits earlier this week, Toyota’s line-up of vehicles misjudged the market: sales of the fuel-efficient Prius remain robust, but its range of trucks and SUVs have lost its appeal as pump prices have soared.

In its quest for sustainable sales, the company has been shifting its focus towards emerging markets in Asia, Latin America and Eastern Europe. Even so, Mitsuo Kinoshita, Toyota’s vice president, said on Thursday that the company’s target of 10.4 million unit sales in 2009 was now under review.

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