Is It Time to Hit the Brakes on Toyota?

Between the economic recovery and the aging of the average car on U.S. roads, it's a good time to get into auto stocks. If sales are any indicator, everybody's in the market for a new car - and Toyota's capitalized with growth.

Japan's leading automaker capped off its first quarter with U.S. year-over-year sales growth of 1% in March. For the entire quarter, Toyota grew sales year over year by 8.7%, delivering more than 500,000 vehicles into the hands of consumers.

Despite the overall gains, however, not every model in Toyota's fleet has sold well over the beginning of 2013. With rivals in the auto industry eager to take a bite out of Toyota's strength, is this company facing trouble in the U.S. market it can't afford to lose its position in?

The problem with the Camry
Toyota's not in real danger in the U.S. just yet. Its Toyota, Lexus, and Scion brands combined to rank as the No. 1 retailer in March, beating out faster-growing sales from rivals such as Ford .

But are cracks showing in this top titan's armor? The company's core Toyota division - maker of Toyota-branded and Scion vehicles - saw sales fall 0.5% in March and posted only 2.9% growth through the first quarter. Cars such as the Corolla managed to stave off losses: Corolla sales picked up by more than 11% in March and more than 17% over the first quarter. The Avalon has also done well, although it sells far fewer vehicles than the company's top brands.

So what's holding Toyota back? Look at the old reliable vehicles: Sales of the steady Camry haven't held their own in 2013. The sedan lost more than 4% in first-quarter, year-over-year sales, and more than a whopping 11% in March. The Prius, Toyota's third-leading U.S. seller, has lost ground too, but the Camry's the most trend of most concern. The vehicle is Toyota's top seller in the U.S. by a big margin, outselling the next-best-selling Corolla by more than 20,000 vehicles in the first quarter. If sales of the Camry keep slipping, this company - and stock - could be in trouble.

CEO Jim Lentz predicts his company will sell more Camrys in 2013 than last year, but that might not be enough to reverse Toyota's fortunes in this market. As fellow Motley Fool contributor John Rosevear points out, Ford's Fusion sedan is snapping up sales and threatens to carve into the Camry's niche in the midsize market. Lentz even admitted that the Camry will likely lose market share to rivals this year as the midsize industry grows, and Ford's well-positioned in its recent growth to pose a significant threat to Toyota's place in the U.S. auto industry.

A future in flux
So should you kill your faith in the world's top automaker? Not quite yet.

Certainly Toyota's facing other problems than just the decline in U.S. sales for two of its three best-selling vehicles. China's a huge headache for this company: The ongoing political strife between China and Japan has hurt Toyota's position in the world's second-largest economy. Rival General Motors has taken a solid lead as the top automaker in China, and with political tension in the Pacific unlikely to go away any time soon, it'll take a minor miracle for Toyota to catch up with its American rival.

However, Japan's export-friendly monetary moves since new prime minister Shinzo Abe took office should help Toyota's overseas ambitions. The weakening of the yen against the U.S. dollar - something that shouldn't slow down any time soon, considering Abe's pledge to turn around Japan's sluggish economy and reach 2% inflation - will make Toyota's American efforts all the more valuable and should help the company stave off losing too much market share.

Fortunately, Toyota's still seeing strong growth in vehicles outside its best-selling sedans. Sales of Lexus cars jumped by more than 13% in March and have climbed by nearly 18% in 2013 so far. Meanwhile, Toyota's pickups have also done well: The strong-selling Tacoma, Toyota's fifth-best-selling vehicle overall, has grown sales by nearly 23% in 2013, while the Tacoma also posted double-digit sales growth in the first quarter.

Still, it's not enough for this automaker to sit patiently and hope rivals slip up. Japan's inflationary drive will help Toyota battle American rivals such as Ford and GM in the U.S., but if the Camry and Prius can't turn things around, it could be a long year for Toyota. There's no reason to abandon this sturdy automaker just yet, but keep an eye on monthly sales. They'll show just how well Toyota's coping with tough competition.

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Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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