Jan. 5 (Bloomberg) -- Japan’s vehicle sales last year fell to a 28-year low, led by Toyota Motor Corp. and Nissan Motor Co., as a recession cut wages and crippled consumer demand.

Sales of minicars, cars, trucks and buses, slipped 5 percent to 5.08 million vehicles in 2008 from 5.35 million in 2007, according to figures released by the Japan Automobile Dealers Association and Japan Mini Vehicles Association today. The tally is the lowest since 1980 when the companies sold about 5.02 million units.

Toyota, Japan’s largest automaker, forecast its first operating loss in 71 years as sales crater in the U.S., Japan and Europe. Spending on new cars in Japan has dropped as the country’s jobless rate climbed to 3.9 percent from 3.7 percent in November.

“The industry is going through a blizzard,” said Ichiro Takamatsu, chief investment officer at Alphex Investments Co., a Tokyo-based hedge fund. “In Japan, people don’t see cars as their status symbol anymore with this economic slowdown.”

Toyota sold 1.47 million vehicles including its Lexus luxury brand last year, down 7.4 percent. Nissan, the country’s third-biggest carmaker, sold 678,160 units, down 5.9 percent. Honda Motor Co., Japan’s second-largest automaker, boosted sales 0.4 percent to 624,547 vehicles, helped by higher demand for the Fit compact car and Freed minivan.

Sales excluding minicars last month plunged 22 percent to 183,549, the worst December on record, the Tokyo-based dealers group said.

Consumer Confidence

“We didn’t expect the market would slump this much,” Takeshi Fushimi, a director of the dealers association said at a briefing today in Tokyo. “Consumers are losing appetite for everything, not just autos.”

Japanese household confidence is at a record low, as worsening job prospects erode sentiment among consumers. The weakening economy last month prompted the Bank of Japan to cut interest rates to 0.1 percent from 0.3 percent. The BOJ also increased purchases of government debt and announced plans to buy commercial paper for the first time.

Domestic demand may further fall in the first three months of this year, as consumers may wait until the government starts to give tax breaks on hybrids and other fuel-efficient models in April. The plan may boost sales by about 300,000 units, Toyota President Katsuaki Watanabe said last month.

Toyota shares gained 3.6 percent to 3,010 yen at the close of trading in Tokyo. Nissan rose 4 percent and Honda gained 2.7 percent.

Honda cut its profit forecast by 62 percent in December, and Nissan slashed its forecast by 53 percent in October.

The drop in domestic demand echoes a sales slump in the U.S., the most profitable market for Japan’s carmakers. In November, Toyota’s sales in the world’s largest car market dropped 34 percent. Nissan’s plunged 42 percent and Honda had a 32 percent drop.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.

Last Updated: January 5, 2009 02:08 EST