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Jan. 24, 2011, 3:54 p.m. EST

Toyota hangs on as the No. 1 global car maker

By Yoshio Takahashi

TOKYO—Toyota Motor (NYS:TM) Corp. narrowly held on to its position as the world's biggest car maker last year after getting hit by massive recalls and as General Motors (NYS:GM) Co. closed the gap in the global sales race.

Toyota said Monday it sold 8.418 million vehicles world-wide in 2010, including those sold by its subsidiaries, Daihatsu Motor Co. and Hino Motors (TKS:JP:7205) Ltd. That was an 8% increase from the previous year, with sales higher both at home and overseas. It was also higher than sales of 8.37 million vehicles in 2010 estimated by the company in December.

Toyota maintained its global sales position for the third straight year after toppling GM in 2008, even though the U.S. car maker said Monday it boosted global sales by 12% last year. GM's sales fell slightly short of Toyota's, totaling 8.390 million vehicles.

But GM closed the sales gap to about 28,000 vehicles in 2010, from about 330,000 in 2009, thanks largely to solid sales in the Chinese market. For the first time, GM sold more vehicles in China than in the U.S. The Detroit car maker sold 2.35 million vehicles in China, 136,000 more than in the U.S.

The narrower gap comes as Toyota struggled last year with global recalls of more than 8.5 million vehicles, denting the company's reputation for quality. Toyota's share in the U.S., its biggest market, fell 1.8 percentage point to 15.2% in 2010 from 17% in 2009.

The setback by the Japanese auto giant is in stark contrast with GM, which made a successful comeback after re-listing its shares in November, following a U.S. government bailout in 2009.

Toyota is still well ahead of Europe's biggest car maker, Volkswagen (FRA:DE:VOW) AG, which has declared it wants to unseat Toyota as world's largest car maker. Volkswagen said earlier this month its sales rose by about 14% to 7.14 million vehicles.

"Looking at the current sales momentum, it's hard to say whether Toyota will be able to keep its top position for a fourth straight year" in 2011, said Mamoru Kato , an analyst at Tokai Tokyo Research Center.

GM likely will get a boost from recovering demand in its home U.S. market, where Toyota is finding it hard to rebuild market share. In addition to the lingering impact of the recalls, Toyota is reeling from sluggish industry-wide auto demand in Japan after the end of government purchasing incentives in September, Mr. Kato said.

While GM enjoys robust growth in China, Toyota expects only a modest sales increase in the world's biggest auto market, Kato added.

Toyota said last month it is targeting global sales of 8.61 million vehicles in 2011, a 2.3% rise from 2010.

Toyota aims to boost overseas sales by 7.5% to 6.68 million vehicles this year.

It expects domestic sales to limit growth in global sales, projecting a fall of 12% to 1.93 million vehicles in Japan, the lowest volume since it started compiling group-wide sales data in 1999.

In 2010, Toyota-only domestic sales excluding those of the subsidiaries jumped 14% from the previous year to 1.566 million vehicles, thanks to the government incentives aimed at sparking demand for fuel-efficient vehicles.

Link to MarketWatch's Slice.