According to Reuters, Toyota Motor Corp., said it could offer bigger sales incentives in the U.S. market this year if a price war continued to escalate.

"We expect overall car demand in the United States to exceed 16 million units this year but still fall well short of last year's level (of 16.8 million)," Toyota President Fujio Cho said in a news conference, reported Reuters.

"That inevitably means fiercer competition, and if the Big 3 step up their incentives, as they are widely expected to do, we will probably be forced to do the same," he said, according to Reuters.

Reuters said Japan's top auto makers have up to now been largely immune to the price war thanks to their reputation for building more attractive and reliable cars.

Accoridng to Reuters, bigger spending on incentives will put pressure on Toyota's profit margin, but the bigger damage would be to General Motors, Ford Motor Co. and DaimlerChrysler, which have been stepping up their discounts and other incentives to sell cars at the expense of profits.

Thanks to strong sales despite a shrinking U.S. market, Toyota last week reported record profits for a third straight year for the 12 months to March 31, turning in a 21 percent jump in operating profit to 1.36 trillion yen ($11.62 billion), reported Reuters.