Japan's number one car company, Toyota, is about to announce its first annual loss as it struggles to cope with the biggest slump in the global car industry for almost 40 years.

Japan's number one car company, Toyota, is about to announce its first annual loss as it struggles to cope with the biggest slump in the global car industry for almost 40 years.

Battered by falling demand from consumers around the world and a surging yen, Toyota forecast an operating loss of 150 billion yen (£1.1bn) for the year to March 2009. Toyota has never reported an operating loss since it began disclosing such figures in 1941.

The maker of the innovative Prius hybrid saloon, which can swap from conventional fuel to electric power, and the luxury Lexus brand has been dealt a heavy blow by falling sales in the US in the financial crisis.

Japan's car companies rely on the American market for about half of their profits and Toyota's US sales plunged by one-third year on year in November as overall sales fell to their lowest level in more than 26 years. Lexus sales dipped sharply in the US and fell by 24% over the past year in Japan.

"The change that has hit the world economy is of a critical scale that comes once in 100 years," company president Katsuaki Watanabe said. He added that the drop in vehicle sales over the last month was "far faster, wider and deeper than expected".

Mr Watanabe said that emerging markets, which had held up earlier, were also slowing down now. There is little hope for a quick recovery as consumers hold back big purchases amid a serious downturn.

The surging yen has battered profits as well by eroding overseas earnings. The dollar has fallen to 13-year lows of about 90 yen recently. Every one yen gain against the dollar represents a 40bn yen plunge in profits at Toyota This is the second time Toyota has reduced its annual earnings forecast this year. Initially, it had been projecting 1.25 trillion yen (£13.9bn) in net profit for the year to March 2009, but last month it reduced that to 550 billion yen before chopping it further yesterday.

In the last fiscal year Toyota had an operating profit of 2.27 trillion yen.

The company also cut the number of vehicles it expects to sell globally this calendar year to 8.96 million, down 4% from a year ago, Mr Watanabe told reporters.

Unlike previous years, he gave no goal for vehicle sales for 2009 and unusually he gave no earnings forecast for the following year to March 2010, noting the company did not have a sales plan yet.

Mitsuo Kinoshita, a Toyota executive, said he hoped the results for the year to March would mark a bottom, with recovery expected the following fiscal year, partly boosted by a drop in material prices.

While Japan's car companies are in far better financial shape than their cash-strapped American counterparts, the global slowdown is hitting them hard.

"The crisis we face now is totally different from past crises," said Mr Watanabe.

At a similar news conference last week, Honda, Japan's number two car group, also lowered profit and sales forecast and declined to give a vehicle sales goal for 2009.

In November, Honda announced it was to shut its UK factory in Swindon for two months in February and March next year in response to falling sales.

The plant's 4800 employees will be laid off but they will still receive basic pay, the company said. Some will be employed in training and on maintenance.

Toyota said it will reduce thousands of temporary workers at its Japan plants, but said their full-time employees will have job security.

Toyota is a relatively old-style Japanese corporation that offers lifetime employment, and in only recent years has hired and let go of temporary workers to adjust production.

Toyota said that it remained committed to grand prix racing.

"We have absolutely no plans to withdraw from Formula 1," a spokeswoman said.