LOUISVILLE, KY – Toyota Motor Sales U.S.A. Inc. sets a lofty 2007 sales goal of 175,000 units for its Prius hybrid-electric vehicle at the same time demand appears to be waning.

The new sales target represents a 62% hike from 2005’s 107,897 Prius deliveries and a 54% spike compared with this year’s 114,000 anticipated sales.

Some industry analysts find next year’s sales goal overly optimistic considering U.S. Prius sales year to date have seen a downward trajectory, leading to speculation the car has fallen out of favor as newer HEVs launch.

The Prius also may be feeling the heat from new fuel-sipping B-segment cars driving into the U.S. marketplace, including the Honda Fit, Nissan Versa and Toyota’s own Yaris, all of which are eminently more affordable than the premium-priced Prius.

Through August, Prius sales were down 3.3% to 70,447 units vs. like-2005, Ward's data shows. While not a huge drop-off, the slide is notable, as the HEV’s sales have grown steadily since the current generation was introduced in 2003.

Nevertheless, Toyota officials insist the Prius will meet expectations.

“We’re definitely not seeing a downturn in interest for the Prius,” Don Esmond, TMSUSA senior vice president-automotive operations, tells Ward's here at a recent media event.

Indeed, he says the Prius is expected to account for the majority of Toyota’s total U.S. hybrid sales for 2007, targeted at 266,000 deliveries. Toyota last year sold 146,512 HEVs, which in addition to the Prius included the Lexus RX 400h and Toyota Highlander Hybrid.

The Prius in February experienced its first year-on-year sales decline in 28 months, according to Ward's data, with sales falling 7.5% from like-2005. Deliveries continued to slip in March, April and May but were back on track in the summer. Last month, sales grew 9.3%, to 11,177, vs. year-ago.

Toyota attributes the Prius sales dip this spring to low inventory caused by a shift in parts supply to the new Camry Hybrid, which is being built in Japan for the U.S. market until production launches this fall at Toyota’s Georgetown, KY, plant.

Asked whether the Prius is genuinely a victim of too many potential buyers and not enough vehicles, or if interest in the car has peaked, Esmond says the former still holds true.

However, data from Boston-based Compete Inc., which tracks the number of buyers shopping a particular vehicle in a given month, contradicts this.

Studies show fewer shoppers for the Prius in recent months, which Compete Managing Director-Automotive Lincoln Merrihew says correlates to the recent drop in the price of gas.

Compete data shows 95,857 car buyers shopped the Prius in April, the highest number year to date and the month with the biggest spike in gasoline prices, Merrihew says. But only 71,032 consumers considered a Prius in August.

“Auto makers cannot assume that high (gas) prices, alone, will drive shoppers toward hybrids and high-mileage models,” Merrihew says. “It is significant changes in (gas) prices” that offer the best opportunity to sell vehicles with good fuel economy.

It is unclear where Toyota will find the extra production in order to meet its robust Prius sales goal next year.

In early 2005, the auto maker added the HEV’s output to its Toyota Auto Body subsidiary plant in Fujimatsu, Japan. The Prius also is assembled at Toyota’s Tsutsumi, Japan, plant.

Additionally, the Prius is built in small numbers for both the domestic market and export at Toyota’s Chinese joint venture plant with First Automotive Works in Changchun.

A Toyota spokeswoman tells Ward's the auto maker has the capacity to build 180,000 Prius models annually, with 100,000 allotted for the U.S. market.

Reports surfaced in March that Toyota would double Prius production at Toyota Auto Body in Japan, from 60,000 units annually to 120,000, but the increase did not occur.

In May, Toyota Motor North America President Jim Press said Toyota “eventually’ would build the Prius in volume outside Japan, but he declined to provide specifics, noting only that Toyota’s policy is to build cars where they are sold.

California Gov. Arnold Schwarzenegger last year pitched Toyota’s New United Motor Mfg. Inc. JV plant with General Motors Corp. in Fremont, CA, as a possible location for additional Prius production.

But Toyota executives appear cool to the idea due to the plant’s West Coast location relative to the auto maker’s other North American manufacturing facilities in the South and Midwest.

It is possible more Japanese production capacity could be allotted to the U.S., as Prius sales this year also have slipped in other markets, including Japan where deliveries fell 15.9% through July to 22,933 units.

cschweinsberg@wardsauto.com