AutoNation Inc , the largest U.S. auto dealership group, on Thursday posted quarterly results that exceeded analysts' expectations and said Toyota Motor Corp was making progress in its repair program.

The dealership group, whose shares were up 1.4 percent in premarket trade, also said that a fourth-quarter increase in new vehicle sales revenue, its first in five years, provided evidence that the U.S. economy was in a gradual recovery.

AutoNation expects the impact on its earnings from Toyota's <7203.T> massive recall campaign to be less than 1 cent per share in the first quarter and nil in the second quarter, Chief Executive Mike Jackson said.

February will be a disrupted month from a sales point of view, Jackson told Reuters in a telephone interview.

However, sales should hit their stride again in March, April and in that period of time Toyota should have recovered the majority of share it has lost during this disruptive period, Jackson said.

He said AutoNation had already repaired accelerator pedals for customers who showed the greatest concern and had repaired about 25 percent of the dealer Toyota inventory and resumed sales of some new Toyota vehicles.

AutoNation expects to have completed repairs on all of its dealer inventory within a week to 10 days, Jackson said.

It will take several months to repair all of those vehicles of customers who schedule appointments and come in and then we will have to have a significant effort to try to encourage everyone to come in, Jackson said.

Net income slipped to $61.7 million, or 35 cents per share, in the fourth quarter, from $67.1 million, or 38 cents per share, a year earlier. Revenue rose 8 percent to $2.8 billion.

Excluding one-time items, AutoNation reported earnings from continuing operations of 29 cents per share. Analysts on average expected 27 cents, according to Thomson Reuters I/B/E/S.

AutoNation reported a fourth-quarter year-over-year increase in new vehicle sales revenue for the first time in five years, providing more evidence that the U.S. economy is in recovery, Jackson said.

We have a bottom, he said. The first signs of the recovery have begun. The absolute level of sales are still low in historical terms, but they are moving in the right direction.

AutoNation expects U.S. auto industry sales of about 11.5 million vehicles in 2010, representing about a 15 percent increase over 2009 excluding the U.S. government cash for clunkers program that propped up sales last year, Jackson said.

Shares of AutoNation were at $18.49 in premarket trade, up from $18.43 at the close Wednesday on the New York Stock Exchange.

(Reporting by David Bailey; editing by John Wallace, Dave Zimmerman)