Toyota, which had topped sales for the past four years, sold 10.175 million vehicles globally in 2016.
That fell short of the 10.31 million sales which VW reported last week.
The milestone comes despite Volkswagen’s scandal over emissions tests cheating, which sparked a global backlash and multiple lawsuits.
Volkswagen, which makes the Audi, Porsche and Skoda brands, saw a 3.8% increase in sales buoyed by demand in China.
Toyota’s sales grew by 0.2% – though it appears to have suffered from a slowdown in the US car industry.
GM reports its figures next week, but it is expected to lag both Toyota and VW.
General Motors was the world’s third-largest automaker in 2015. It held the number one title in 2011 after Toyota’s production was hit by a massive earthquake and tsunami in north-eastern Japan.
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