LOS ANGELES (Bloomberg) -- To see the constant tension at automakers between sales volumes and profit margins, look no further than the current state of Toyota Motor Corp.'s Camry.
The Camry sedan has been the top-selling car in the United States for 11 years.
In February sales results announced last week, however, there was a shocker: Camry sales slumped 9.5 percent from a year earlier, the biggest drop in 16 months, knocking Toyota's sales growth to about half what analysts had estimated.
The rough month reflects rising competition for Toyota, which regained the title of world's largest automaker in 2012.
In the mid-sized car segment that accounts for 22 percent of U.S. light-vehicle sales, Camry faces models that have been revamped in the past year, including the Ford Fusion and Nissan Altima, which both came with bigger discounts last month, according to researcher Edmunds.com.
While Camry's sales would have to continue to slide to lose its No. 1 title -- it outsold its nearest competitor by 22 percent last year and kept that same lead so far this year -- a swoon for its trademark product would be a blow for Toyota.
"It's a lot tougher for Camry to maintain the level of dominance that we saw last year," Alec Gutierrez, analyst for Kelley Blue Book, in Irvine, Calif. "To maintain its dominant position, Toyota's going to have to look carefully at its incentive approach."
Across its entire lineup, Toyota's prices were 5.9 percent higher than in February 2012, the biggest increase of any major automaker, researcher TrueCar Inc. said last week.
That compares with an industry average increase of 1.2 percent, according to TrueCar, which tracks auto industry sales and incentives.
Just last week, Toyota finally offered a tidbit: no-interest financing on the 2013 Camry, excluding the hybrid version.
The question now is whether it will take an even bigger bite out of its margins to protect the U.S. market-share gains Toyota has made in the first two months of the year.
Of the top four mid-sized sedans in February, Camry had the second-lowest incentives at $1,505 per car, according to Edmunds.com.
Nissan Motor Co.'s Altima offers about $260 more and Ford Motor Co.'s Fusion about $650 more .
Honda Motor Co.'s Accord, the perennial No. 2, is also new this year. Honda offered $567 for the Accord that went on sale in late 2012.
Toyota already offered no-interest loans on the 2012 Camry and last week extended them to the non-hybrid version of the 2013 Camry.
Honda is benefiting from Toyota's pricing discipline.
Sales of its flagship Accord jumped 35 percent in February.
Two months earlier, Camry's lead over the Accord was fewer than 2,000 and Honda's compact Civic had even outsold Camry that month as the top-selling car, 33,118 to 31,407.
Ford is also closing in with the redesigned Fusion sedan, sales of which rose 28 percent last month.
Nissan's Altima, the third-best selling mid-sized car in the U.S. last year, slid 16 percent.
"We know it's a competitive segment," said Mike Michels, a Toyota spokesman. "All three of those makes are very high profile in their marketing, and all three companies want to make an impact with consumers," he said.
Camry's February slump comes against a backdrop of a resurgent U.S. auto industry.
The three Detroit automakers reported increased sales last month, with General Motors up 7.2 percent, Ford up 9.3 percent and Chrysler Group LLC up 4.1 percent.
Toyota is also facing mounting competition in China, the world's biggest auto market, where the company last year lost market share to GM Japanese brands have failed to fully recover from riots in September sparked by a territorial dispute.
The drop in Camry sales may be temporary because Toyota was particularly hurt by a snowstorm in a region where its models have a higher than average share, according to Jessica Caldwell, an industry analyst for Edmunds.com, a vehicle pricing and data company in Santa Monica, Calif.
New York City, Long Island and parts of southern New England received snow the weekend of Feb. 16 and 17. There was also a winter storm the last week of February.
"They probably missed some sales in Boston and the Northeast because of the snow," said Caldwell, who had projected Toyota sales to rise 5 percent. "When Camry's down, that's a big impact for Toyota since it's such a big part of their sales."
Toyota's February vehicle sales rose 4.3 percent. While Toyota's nationwide market share was 14.4 percent last year, it was 18 percent in the Boston area, Caldwell said.
Toyota's profit margin has shrunk to less than 2 cents of earnings for every dollar of sales, according to data compiled by Bloomberg.
That's worse than 97 percent of rival global automakers with a market value of more than $10 billion. GM has a profit margin of 3 percent, while Honda's is 3.2 percent, the data show.
Investors haven't expressed much concern, particularly after the yen began tumbling against all major currencies from mid-November.
Toyota shares gained 43 percent for the 12 months ended yesterday.
"Although the Camry is quite symbolic for Toyota, I'm not very concerned about the drop impacting the company's profit," said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co. "Having low incentives is a good sign since it means the company believes the sales drop to be temporary, and even if it's prolonged, Toyota could sell more by increasing incentives."
The decline for Camry, as well as a 14 percent drop for the Toyota City, Japan-based company's Prius hybrid line, led to a 2.8 percent slump for the company's cars in February.
Bill Fay, Toyota's group vice president for U.S. sales, attributed the drop for Prius to a bigger marketing push a year ago when it went to a four-vehicle lineup.
"We were in the middle of launching and putting a lot of marketing support behind the Prius family," Fay said on a March 1 conference call.
A year earlier, the company was introducing the Prius v and Prius c, and the Prius line "was getting an awful lot of our attention and marketing focus."
By comparison, Toyota light truck sales rose 16 percent last month -- double the industry's 7.8 percent increase -- helped by weather concerns, said Michels, who is based at the company's U.S. sales unit in Torrance, Calif.
"Certainly the little bit of bounce on trucks and SUVs we saw had a lot to with bad weather," he said.
During the month, the company also marketed the new Avalon sedan and compact RAV4 sport-utility vehicle more heavily than Camry, Michels said.