Volkswagen may have become the world's top-selling automaker in the first quarter as government incentives have fueled demand in its major markets, overtaking industry giant Toyota.

The German automaker, with its nine car and truck brands including Audi, Skoda, Seat and Scania, has set a goal of overtaking Toyota and General Motors Corp to be the world's No.1 seller by 2018 -- a target that was initially met with skepticism.

But a deepening recession and credit crisis have crippled demand in Toyota's top markets, with U.S. sales falling 38 percent and Japan sliding 24 percent in January-March.

Volkswagen, meanwhile, is benefiting from government stimulus plans for the car industry that have boosted sales in Germany, China and Brazil, which together accounted for 44 percent of group sales last year, making it more likely that it beat Toyota or at least came close.

Alone in Germany, new registrations of Volkswagen group brands rose 19 percent to about 282,000. Toyota sales grew 43 percent but its market share is just 4.4 percent whereas about every third new car sold in Germany came from the Wolfsburg-based manufacturer.

Volkswagen has the luck of being strong in the markets that are currently growing, while Toyota is exposed to those that are collapsing, said Ferdinand Dudenhoeffer, head of the Center for Automotive Research in Gelsenkirchen, adding the quarter's results would be close.

Toyota, which significantly outsold every other manufacturer in 2008, is not entirely without blame for its volume declines, however. The Japanese carmaker has seen sales fall every month of this year in China, its third-biggest market.

In the first quarter of last year, the German group delivered 1.57 million vehicles, a third less than Toyota's 2.41 million, which included sales at minivehicle and truck units Daihatsu Motor Co <7262.T> and Hino Motors Ltd <7205.T>.

Toyota has given no forecast for retail sales, but its latest estimate for shipments for the 2009 first quarter is 1.23 million vehicles, down 47 percent from a year earlier.

Its first-quarter U.S. sales fell 36 percent, while sales in Japan for the core Toyota brand plummeted 31 percent. The two markets account for just under half of Toyota's global sales.

Volkswagen on Thursday confirmed projections for a 10 percent fall in global sales in 2009, which would translate to around 1.42 million vehicles in the first quarter if the decline was distributed equally across the entire year.

Volkswagen is a big competitor for Toyota, said Koji Endo, auto analyst at Credit Suisse in Tokyo. Audi is strong, Volkswagen is strong, and they're making good use of their small cars.

The automakers are expected to disclose their worldwide first-quarter vehicle sales over the next week.

The battle for top spot is also likely to be intense in coming quarters.

Toyota is counting on a third-generation Prius hybrid car due for roll-out next month to jump-start sales as more countries offer consumers incentives to buy energy-efficient cars. It will launch 16 new models in Europe this year following a product drought in 2008.

Volkswagen, for its part, will have a full year of contribution from the remodeled Golf, a perennial best-seller, and the relaunch of its popular Polo compact car.

Volkswagen has also moved up in stock value ranking, grabbing the No.2 spot behind Toyota, whose market capitalization of $133 billion still outstrips the German carmaker's $100 billion.

Market research company R.L. Polk Germany predicted this month that Volkswagen would overtake GM as the world's second-largest automaker as the U.S. giant suffers steep declines at home amid fears of bankruptcy.

(editing by John Stonestreet)