Toyota plans to boost profitability in the tough Japanese domestic market by beefing up its used car and servicing businesses, while the recent launch of the luxury Lexus brand will also contribute, a top executive said on Wednesday.

Reuters noted that profits at the world's second-biggest car maker have been soaring in recent years thanks to rapid growth overseas, but Japan has been a difficult profit centre due to fierce competition and a shift to cheaper compact cars in a stagnant market that has shrunk by a third since peaking in 1990.

"Raising the level of profitability is very difficult in Japan," Kyoji Sasazu, executive vice president of domestic sales, told the news agency, acknowledging consumers' increasing preference for compact or even smaller 660cc minicars.

"But there are several things we can do. We can offer more servicing and options to each customer, and come up with more ways to provide maintenance and other services to a wider range of people - including non-Toyota drivers," he said in an interview with Reuters at Toyota's Nagoya office.

That would allow Toyota to tap the owners of 42.6 million passenger cars currently on the road in Japan, compared with annual new car demand of roughly four million units.

Sasazu also said the used car segment was also a promising field where the auto maker had much more room to grow.

"This is an area where specialty companies (like Gulliver International Co. are dominant," he told Reuters. "Our market share, on the other hand, is just 10% or so."

That, the news agency noted, compares with Toyota's staggering market share of 43-44% in the new-car market, where demand is widely expected to contract in the not-too-distant future as Japan's population ages and starts to shrink, as early as next year by some estimates.

Reuters said Toyota's independent sales companies already operate their own used car business, but the car maker will for the first time set up its own entity next week, owning 95% of the firm.

The new company will begin selling and buying used cars of all brands in Saitama, outside Tokyo, from next May through four trial outlets, the report added.

While these steps could help boost Toyota's bottom line in Japan, industry experts have argued that inefficiencies are still rampant, according to Reuters.

At a time when rivals like Nissan Motor have been consolidating their sales networks, Toyota still sells its cars through around 4,900 outlets in Japan belonging to four different sales channels - down from five since an overhaul last year.

At the targeted sales of 1.8 million cars this year, each outlet in Japan would sell 370 units on average, compared with about 1,500 per outlet in the United States, Reuters said.

Sasazu reportedly argued that each channel specialised in distinct segments - the Toyota channel in higher-end sedans like the flagship Crown and the Netz stores for entry-level cars like the Vitz [Yaris/Echo overseas] - and that ensured a higher level of knowledge and service for customers.

"We don't plan to further change this structure," he told Reuters, adding that the number of outlets would also remain.

The report said Toyota, like other Japanese car makers, does not disclose the extent of its profit margins in individual markets, but Sasazu told Reuters profits, which have been "stable" for years, would eventually get a boost  from the Lexus brand, launched in Japan last August, at least when sales reach a longer-term target of 100,000 units annually.

"Toyota's profits in Japan will undoubtedly grow from current levels," Sasazu told Reuters, though he declined to elaborate.