Aug. 4 (Bloomberg) -- Toyota Motor Corp., the world's second- largest carmaker, said first-quarter profit rose 39 percent on increased sales of fuel-efficient Corolla and RAV4 vehicles in the U.S. and a weaker yen.

Net income increased to 371.5 billion yen ($3.23 billion), or 115.2 yen a share, for the three months ended June 30, from 266.9 billion yen, or 81.8 yen, a year earlier, the Toyota City, Japan- based carmaker said. That was more than the 330 billion-yen median estimate of seven analysts surveyed by Bloomberg News. Sales rose 13 percent to 5.64 trillion yen.

President Katsuaki Watanabe boosted global sales and last month overtook Ford Motor Co. in the U.S. for the first time as gasoline prices soared. Toyota is close to ending General Motors Corp.'s 80-year reign as the world's biggest automaker.

``Toyota's got all the important segments and markets covered very well,'' said Ashvin Chotai, a London-based automotive analyst for Global Insight Inc. ``Toyota's making money on each car, while GM is just moving metal.''

Shares of Toyota in the U.S. rose $3.13, or 2.9 percent, to $110.10 in New York composite trading. The stock fell 0.5 percent to 6,080 yen at the close of trading in Tokyo. Toyota released earnings after the market closed. The shares have risen 44 percent over the last 12 months compared with a 12 percent decline for GM and a 34 percent drop for Ford.

U.S. Sales

Toyota increased its U.S. market share in the three months ended June by 2.3 percentage points to 15.3 percent from the same period a year ago, while GM dropped 3.7 points to 24.5 percent. Toyota said its first-quarter incentives in the U.S. averaged $759 a vehicle, down 30 percent from a year ago.

In March the automaker introduced the Yaris compact car, the FJ Cruiser and a redesigned Camry sedan in the U.S. It plans to debut at least six other models later this year. Drivers have opted for cars over light trucks and sport-utility vehicles to cut fuel costs.

``Consumers are shifting to compact cars as the price of oil surges,'' Takeshi Suzuki, Toyota's senior managing director said at a Tokyo press conference. ``Overall profit hasn't been affected since we are paying less in incentives and selling more in the U.S.''

Surging fuel prices have spurred demand for Toyota's vehicles. Gasoline prices in the U.S. have risen 31 percent to an average $3 over the past 12 months.

``Toyota will clearly become the No. 1 automaker in the world,'' said Atsushi Osa, who helps oversee $4.1 billion at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Toyota is trying to make sure that it doesn't go after volume, but making sure it has the right products in the right markets at the right time.''

Exchange Rates

Toyota increased its operating profit by 100 billion yen due to exchange rates, following Honda Motor Co. and Nissan Motor Co. in benefiting from a declining domestic currency. The yen was about 6 percent weaker against the dollar in the quarter. The carmaker was able to absorb an increase in aluminum and copper prices and still cut costs by 20 billion yen.

Honda's fiscal first-quarter profit surged 30 percent to a record 143.4 billion yen, while Nissan's profit gained 4 percent to 110.2 billion yen, both helped by the weaker currency. GM's second- quarter loss was $3.4 billion after the automaker took a charge to eliminate 34,400 jobs.

More Recalls

Toyota, which has dominated quality surveys conducted by J.D. Power & Associates, has had more recalls than rivals at home, where it has more than 40 percent of the market. Toyota yesterday said it will monitor possible defects following a government probe into recalls. The carmaker has recalled more than 1 million vehicles domestically this year. Improvements to prevent recalls will not add to costs, Suzuki said.

Recent recalls may be resulting from the carmaker's strategy of sharing parts and platforms among models, Yasuhiro Matsumoto, a senior analyst at Shinsei Securities Co. said.

Toyota reiterated its earnings forecast for the year ending in March 2007. In May, Toyota said profit will decline by 4.5 percent to 1.31 trillion yen for the fiscal year. The company predicted sales will rise 6 percent to 22.3 trillion yen and operating profit will rise 1.2 percent to 1.9 trillion yen.

``We can actually see reaching 2 trillion yen in operating profit,'' Suzuki said. ``We aren't at a stage to revise out outlook at this point. We hope to be able to exceed our forecasts.''

Expanding Production

Toyota is spending a record 1.55 trillion yen in the year ending in March to expand production in North America, Europe and Asia, and plans a Texas factory this year and a factory in Russia in 2007.

Toyota's North American vehicle sales gained 17 percent in the quarter to 747,000 vehicles and in Japan fell 1.3 percent to 543,000 vehicles. Sales in Europe rose 20 percent to 308,000 in the period. Sales in Asia excluding Japan fell 16 percent to 193,000 vehicles, as demand dropped in Indonesia and Taiwan. Global sales gained 7.3 percent to 2.09 million vehicles, the automaker said.

Toyota maintained its sales forecast of 8.45 million vehicles for the full year as declining sales in Asia will be offset by gains in the U.S. and Europe, Suzuki said.

``Toyota's biggest strength is that it's learning how to design cars suited for each market,'' said Edwin Merner, who manages $1 billion as president of Atlantis Investment Research Corp. in Tokyo. ``It will be difficult for rivals to catch up.''

To contact the reporter on this story: Kae Inoue in Tokyo at kinoue@bloomberg.net

Last Updated: August 4, 2006 10:51 EDT