WASHINGTON: Toyota Motor Corp.'s Prius hybrid car is under investigation by the US Transportation Department for reports of defective brakes in its 2010 model, adding to recalls and safety questions facing the world's largest automaker.

The department's National Highway Traffic Safety Administration has received 124 reports from consumers, including four saying crashes occurred with two "minor" injuries, according to the investigation document.

Toyota said today it may recall the latest version of the Prius, the best-selling hybrid car, in Japan after the Japanese government ordered an investigation of its braking system.

Nikkei English News reported earlier today that Toyota will recall 270,000 Prius cars in the U.S. and Japan, without saying where it got the information. NHTSA hasn't received confirmation of a recall yet in either country, according to a U.S. Transportation Department official.

Mike Michels, a spokesman for Toyota's U.S. sales unit in Torrance, California, said a U.S. recall "is not confirmed." He said he isn't authorized to comment on decisions made in Japan.

Almost 8 million Toyota vehicles have already been recalled worldwide for defects leading to sudden acceleration. Trouble with the Prius would tarnish the reputation of what the company has called its flagship model.

"It would be more than just a loss of faith if Toyota were to recall the Prius, it could be humiliating for them," said Ian Fletcher a London-based analyst at IHS Global Insight, in an interview today. "The Prius is a very prominent vehicle, it appears to underpin Toyota's future strategy."

Safety 'Top Priority'

"Safety is our top priority," U.S. Transportation Secretary Ray LaHood said in a statement today. "We will continue to monitor these issues closely."

LaHood and Toyota President Akio Toyoda talked "late" yesterday, according to the statement. Toyoda "reassured" LaHood that the company "takes U.S. safety concerns seriously and puts safety at the top of the company's priorities," according to the statement.

The conversation, which LaHood had requested, lasted at least 15 minutes and was the first between the two since Toyota expanded an accelerator pedal recall this month, said Olivia Alair, a Transportation Department spokeswoman.

"They did not discuss the Prius specifically," she said. "It was broadly about Toyota's commitment to safety issues."

U.S. Trading

Toyota's American depositary receipts, each representing two ordinary shares, fell $1.71, or 2.3%, to $71.78 at 4:03 p.m. in New York Stock Exchange composite trading to the lowest closing price since April 2. The drop extended a slump that's wiped out $37 billion of market value since the carmaker said it would recall cars and trucks due to cases of unintended acceleration.

Toyota City, Japan-based Toyota is examining 77 Prius reports in Japan and eight in North America, spokesman Takanori Yokoi in Tokyo said today by telephone. Driver complaints include brake failure or weaker braking while driving on bumpy roads, according to a list posted on the Web site of Japan's Transport Ministry and to the U.S. NHTSA.

"The possibility of a recall is not zero," spokesman Takanori Yokoi in Tokyo said today by telephone. The company is considering measures that may include a recall, he said.

The automaker "will cooperate fully with NHTSA's investigation," it said today in a statement. "This condition is not related to either the floor mat entrapment recall or the sticky pedal recall currently in action."

Profit Forecast

Toyota forecast today a return to annual profit and a 51% surge in North American sales this quarter amid the recall crisis.

The automaker expects net income of 80 billion yen ($880 million) in the year ending March 31, compared with an earlier forecast for a 200 billion yen loss, it said in a statement in Tokyo today.

Toyoda predicted sales of 503,000 vehicles in North America in the three months ending March 31 even as Toyota has been forced to take its top-selling models off the U.S. market. Global recalls of almost 8 million vehicles due to reports of unintended acceleration will dent demand by 100,000 vehicles and cost 100 billion yen, the company said.

"There's a huge possibility that Toyota won't meet this forecast," said Koji Endo, managing director of Advanced Research Japan in Tokyo. "The recalls will damage their reputation and if they widen, there will be costs which Toyota has not yet taken into account."

Toyota fell 3.5% in Tokyo trading to close at 3,280 yen, the lowest level in more than 10 months, before the earnings announcement.

Brake Software

The carmaker said today it had received complaints about Prius brakes through dealers starting in the last few months of 2009. Toyota changed the design of the brake software at the end of January, the company said. The carmaker is also examining HS250h and Sai hybrid models and considering steps dealers can take for current Prius owners, including exchanging some parts.

The brake complaints aren't related to the incidents of sudden acceleration in the U.S., company spokeswoman Ririko Takeuchi said.

"I admit that Toyota may have been lax in our judgment" regarding customer expectations, Managing Officer Hiroyuki Yokoyama said in Tokyo.

The carmaker has accounted for the costs of announced recalls in its forecast, Senior Managing Director Takahiko Ijichi told reporters in Tokyo today. The estimate doesn't include a possible Prius recall.

Quarterly Earnings

Toyota posted net income of 153.2 billion yen in the three months ended Dec. 31, the biggest profit in six quarters, as government tax cuts and rebates in its largest markets helped automobile demand recover from a global recession. The result compared with a loss of 165 billion yen a year earlier.

Vehicle sales in the quarter rose 12.4% to 2.065 million, led by gains in North America and Japan. Revenue increased 10% to 5.29 trillion yen.

The company raised its forecast for global vehicle sales in the year ending March 31 to 7.18 million from an earlier prediction of 7.03 million. The prediction of 503,000 vehicle sales in North America this quarter compares with 642,000 in the previous quarter and 334,000 a year earlier.

A recall announced last month to fix defective gas pedals covers 2.57 million vehicles in the U.S. and Canada, 1.71 million in Europe, 80,000 in China, and 180,000 in Latin America, Africa and the Middle East. Separately, Toyota has recalled 5.35 million U.S. vehicles because of floor mats that could jam accelerator pedals.

Toyota has said 2.1 million cars were recalled for both mat and accelerator-related problems.