Toyota Motor Corp., to make its earnings target this year, needs the new Camry to wrest back market share from Hyundai Motor Co.’s Sonata sedan.

The Camry, the best-selling car in the U.S., has lost ground to the Sonata, with Seoul-based Hyundai raising its U.S. output and surpassing the Camry in May for the first time.

“Sonata became a very honorable contender in the market,” said Yoshimi Inaba, Toyota’s North American chairman, in a July 12 interview. “We do have good respect for the model, and the sales figures show it’s increasing quite a bit.”

U.S. sales of Camry last year dropped 31 percent to 327,804 compared with deliveries in 2007, Toyota’s best-ever year, while Honda Motor Corp.’s Accord sales also dropped 28 percent to 282,530 in the period, as both models approached the end of their product cycles. Sales of the Sonata, revamped in January 2010, surged 35 percent to 196,623, reported Bloomberg.

The 2011 Sonata’s overall design quality is rated “among the best” by J.D. Power & Associates and earned a “Top Safety Pick” award from the Insurance Institute for Highway Safety.

Until a few years ago, Toyota’s Camry and Honda’s Accord “defined” the midsize segment in the U.S. for at least a decade, said Jeremy Anwyl, chief executive officer of auto researcher Edmunds.com in Santa Monica, California. “But Hyundai has really stepped up their game, and Toyota’s been paying attention.”

The next version of the Camry will have a more contemporary design and improved performance and handling, President Akio Toyoda told U.S. dealers on June 29 in Las Vegas. The new model will go on sale in the latter part of the year.

Toyota’s current Camry, last refreshed in March 2006, gets up to 32 miles per gallon in highway driving in the U.S., compared with the Sonata’s 35 mpg and Honda’s 34 mpg. With Hyundai’s improvements in design and fuel efficiency, sales of the Sonata have jumped 29 percent to 115,014 units this year through June, while the Camry has dropped 4.4 percent to 147,469 in the U.S. Restricted production after the March 11 earthquake in Japan has also contributed to the decline.

Hyundai didn’t have to slow production after the quake as its Japan-based suppliers’ plants aren’t located in the affected areas, according to the company. As a result, Sonata outsold Camry in May for the first time, according to Edmunds.com.

While both the Sonata and Camry sold in the U.S. are built locally, the weak Korean currency relative to the dollar benefits Hyundai when it repatriates profit. The yen, on the other hand, has hurt Toyota by gaining about 10 percent over the past year. The Japanese currency on July 13 climbed to as high as 78.50 yen per dollar, the strongest since March 17.

The 2011 Camry is currently priced from $20,195, compared with the Sonata’s $19,395 starting price tag.

Camry - which is the Anglicized spelling of “kanmuri,” meaning “crown” in Japanese - accounted for about a fifth of U.S. sales at Toyota last year.

Defending its lead will be more difficult given stiffer competition from Hyundai, Ford Motor Co., and an “ambitious” Volkswagen AG, said Tadashi Usui, an analyst at Moody’s K.K. in Tokyo.

Sales of Ford’s Fusion sedan have jumped 18 percent this year through June, outselling the Accord. Volkswagen, aiming to topple Toyota as the world’s biggest carmaker by 2018, will start selling a Tennessee-built Passat sedan as early as September.

“I’m not necessarily optimistic that the new Camry will help Toyota regain market share,” Usui said.

With a drop in demand for pick-up trucks, Toyota is more dependent now on its best-selling Camry, along with Lexus luxury models to boost earnings, he said.

Moody’s Investors Service lowered its debt rating on Toyota on June 28, taking it below Japan’s sovereign grade for the first time, citing weaker ability to recover previous levels of profitability. Toyota expects to earn 280 billion yen ($3.52 billion) in net income this fiscal year, compared with 1.7 trillion yen in the year ended March 2008.

Helped by the new Camry, Toyota’s market share will rise to 15 percent in the six months ending in December, from 12.8 percent in the first half of the year, according to consulting company IHS Automotive, based in Englewood, Colorado. Still, Toyota’s share will stagnate at that level over the next three years because of strong competition, said IHS analyst Masatoshi Nishimoto in Tokyo.

“Toyota will not recover its 16-17 percent market share from before the financial crisis,” he said.

Honda, which will likely introduce its updated Accord sedan next year, will also remain at about 11 percent market share through 2014, slightly up from 10.6 percent last year, according to IHS. Hyundai, including affiliate Kia Motors Corp., will rise to at least 8.5 percent in the period, from 7.7 percent in 2010.

“We recognize that the Korean models are very competitive because of their good quality and affordable price,” said Keitaro Yamamoto, a spokesman for Honda in Tokyo. “Before, it was Accord versus Camry, but it’s definitely becoming Accord versus Camry versus Sonata.”

While analysts cite Hyundai’s improvements in styling as a factor for its growth, design may not be as important as performance. “People buying a Camry aren’t looking to make a statement,” Anwyl said. “They’re looking for dependability.”

The new Camry is Toyota’s first major full-model change since last year’s recalls of more than 10 million vehicles for flaws linked to unintended acceleration.

Following the recalls, Toyoda formed a global quality committee to tackle defects. In the U.S., the carmaker hired additional engineers at its technical center in Ann Arbor, Michigan, as the facility plays a bigger role in developing models for the American market.

“If there are any lingering concerns on Toyota’s vehicle safety, this is a good opportunity to close that chapter,” Anwyl said.