Toyota Motor Corp's <7203.T> massive recall and sales halt of its best-selling vehicles will overshadow an expected industry increase in U.S. auto sales for January over the deeply depressed month a year ago.

Toyota is expected to post a sharp drop in sales after it shut down sales of its most popular vehicles in the last week of January, including North American-built Camrys and Corollas, amid its recall of 2.3 million vehicles tied to faulty accelerator pedals.

Analysts expect Toyota's woes to result in sales and market share increases by its largest competitors in the U.S. market including General Motors Co , while it remains unclear how deeply the sales shutdown will run into the February sales period for Toyota, No. 2 in U.S. auto sales behind GM.

Toyota said on Monday it has found the remedy to fix potentially sticky accelerator pedals in the recalled vehicles, but it is expected to take some time to complete repairs.

Frankly, I think this is going to impact their entire quarter, said IHS Global Insight analyst Aaron Bragman. It means opportunity for the rest of the industry. Toyota is wounded and rivals are going to go after it as much as they can.

GM, Ford Motor Co , Chrysler Group and Hyundai Motor Co <005380.KS> offered incentives to lure Toyota customers.

Autoconomy analyst Erich Merkle believes Honda Motor Co Ltd <7267.T> may benefit the most from Toyota's crisis as U.S. customers frequently cross-shop the two Japanese automakers. Ford and Hyundai also could be big beneficiaries, he said.

David Sargeant, vice president of automotive research at J.D.Power & Associates, said the sales shutdown would have significant impact in the short term, with Toyota likely to lose a few percentage points of market share in February. Toyota had a 17 percent U.S. market share in 2009.

The bigger issue is what's the longer term impact on their reputation and how that will affect sales going forward. What we know is that Toyota's sales are very heavily dependent on reputation for quality and safety, Sargeant said.

This is particularly a bad time for Toyota because the industry will be picking up and now a lot of that benefit is going to go to the other competitors.

Assuming buyers move to competitors with similar vehicles, Barclays Capital sees short-term market share gains for GM, Honda, Ford, Nissan and Hyundai.

FORD, GM SEE DOUBLE-DIGIT GAINS

Analysts and industry executives expect sales of 10.5 million to 11 million units in January on an annualized basis, up from the 9.6 million rate a year earlier. Sales fell below the 10 million unit annualized rate in January 2009 for the first time since 1982 amid a deep economic downturn.

But the results are expected to be down from 11.2 million units in December, when automakers posted a 15 percent sales increase from the prior year, supported by year-end incentives that helped drive retail sales.

There's no question that the worst is behind us. There's no question about that and that we're into a period of expansion, Ford sales analyst George Pipas said.

This is probably not going to be the kind of recovery that is nice and linear, Pipas said. We're going to see fits and starts for the consumer.

He said Ford expected to post a double-digit percentage sale gain, led by a surge in sales to fleet operators propelled by car rental agencies.

GM sales analyst Mike DiGiovanni also forecast a double-digit increase in its January U.S. sales, stronger than an estimated 5-10 percent rise in industrywide sales.

U.S. industry light vehicle sales are expected to come in at 10.7 million to 11 million units on a seasonally adjusted annualized rate, DiGiovanni told reporters on Thursday.

Automakers are expected to post a steep drop in retail sales in January, always seen as a slow month for the industry.

That is likely to be offset by a strong rebound in fleet sales, which were pummeled last year after financing dried up and businesses pulled back on spending in the wake of the U.S. banking bailout.

(Reporting by David Bailey and Soyoung Kim, editing by Matthew Lewis)

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