But sales in the US have stagnated just as Toyota ramped up production and the automaker has begun resorting to special deals, or incentives, to lure customers once willing to wait months for the gasoline sipper that had become a status symbol among the environmentally-conscious.

Toyota's president for North American operations said the incentives and the fact that the company is going to begin advertising the Prius in the coming weeks are not a sign of weakness, but instead are part of the strategy to bring what has essentially been a niche vehicle into the mainstream.

"We've been living a little bit in fool's paradise," Jim Press told reporters Thursday on the sidelines of the Chicago auto show.

"But now, as we planned, we increased our production and we want the vehicle to turn it into a mainstream vehicle and that's going to require some marketing and tactical incentives to make sure the inventory continues to flow."

Prius sales fell 0.5 percent in 2006 to 106,971, although they bounce back in January rising four percent to 8,299 vehicles.

Toyota, which has been the industry leader in hybrid gas-electric vehicles, introduced the 2008 Highlander Hybrid mid-size sport utility vehicle at the Chicago auto show Wednesday.

But it will face competition from both Ford and General Motors which are also introducing hybrid sports utility vehicles for people who don't want to give up their high seats and towing capacity for better fuel economy.

Press said the automaker's overall hybrid volume, which includes a luxury hybrid SUV and the best-selling Camry sedan "has never been better" and he welcomes the competition from other automakers because it will help "make sure the hybrid powertrain becomes part of the mainstream."

Press said automakers have to work together to help reduce the environmental impact of their products. "At Toyota, we've said for years that automakers should compete in the showroom but cooperate in the laboratory," Press said during a speech to the Economic Club of Chicago.

"I hope we see the immense value that can come from working together both within our industry and across sectors to solve the challenges of our future that working in harmony with each other is a better solution than going it alone," Press added.

Press said he welcomed President George W. Bush's call for increased use of alternative fuels like ethanol and a tightening of fuel economy standards.

"We're already making steady progress in limiting both fuel consumption and tailpipe emissions, aided by a growing stream of high-efficiency engines and hybrid powertrains," he said, adding that Toyota won five spots among the US government's top 10 most fuel efficient vehicles.

"Across our entire product line, including both cars and trucks, Toyota ranks as the most fuel-efficient full-line automaker."

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