Ford reported its biggest first-quarter profit since 1998 on Tuesday, as the domestic auto industry shows growing signs of vitality since its near collapse three years ago.

The nation’s second largest automaker attributed the jump in part to the sales of fuel-efficient vehicles, which have become more attractive with the rise in gas prices.

Linking the company’s profits to small cars represents a marked change from the past, when some U.S. automakers complained that profit margins on them were too tiny to be important. Instead, automakers relied on sport-utility vehicles to make gains.

But Ford officials indicated Tuesday that they have been able to increase prices and profit margins on small cars, in part by selling them equipped with electronics, navigation systems and comforts such as seat-warmers.

“We really are pleased with the progress,” Ford chief executive Alan Mulally said during a conference call with reporters and analysts.

The announcement came amid other positive signs for the U.S. economy, as stocks surged, with the Dow Jones industrial average and the S&P 500-stock index each up nearly 1 percent for the day.

Analysts attributed the market gains to upbeat reports from an array of companies and an uptick in U.S. consumer sentiment, as measured by the Conference Board’s index of consumer confidence. The confidence index notched its second-highest reading since the downturn in 2008. Industrial stocks, such as 3M, Caterpillar and Ford were particularly strong.

Indeed, Ford’s success has come despite what might be considered some turbulent market conditions.

The earthquake in Japan, which has crippled some vital auto parts makers, has caused automakers around the world to scramble for supplies.

“The impact of the tragic events in Japan continues to unfold, and we are managing this on a day-to-day basis,” Mulally said. But “during the first quarter, there was very limited impact on our production.”

Possibly worse for automakers, gas prices rose steadily in the first quarter, a phenomenon that generally suppresses sales of the industry’s largest and most profitable vehicles. As the industry neared disaster in 2008, rising gas prices were partly to blame, and company executives faced a barrage of criticism from Congress and environmentalists for relying so heavily on larger, gas-hungry vehicles.

But on Tuesday, Ford officials indicated that the sales of fuel-efficient cars had “boosted” results.

“They’d rather be selling larger vehicles,” said Jessica Caldwell, an industry analyst at, the automotive Web site. “But the margins have gotten better for smaller cars. It really helps them grow profits.”

Ford’s net income was $2.6 billion for the quarter, or 61 cents a share, up 22 percent from $2.1 billion, or 50 cents a share, in the corresponding period a year ago. Ford’s stock rose about 0.8 percent in regular trading.

Analysts credited the company with making better cars, and resisting the temptation to hold on to market share by lowering prices or offering incentives. Ford’s market share in North America did decline slightly, to 16 percent from 16.5 percent a year ago.

“We’ve seen improvement in the fundamentals of the company in every year,” said Jesse Toprak, vice president for industry trends at, which tracks auto sales. “It’s the strength of product. The best-case scenario for an automaker is that you sell the car and not the deal. It’s easy to say but it’s not easy to do.”

Mulally said the company expects to add 7,000 jobs in the United States in the next couple of years.

“We anticipate that our market share overall for the year will be equal to improve over last year, which is terrific in this environment,” Mulally said.