July 23 (Bloomberg) -- General Motors Corp., battling to keep its global sales crown, fell further behind Toyota Motor Corp. during the second quarter as a deteriorating U.S. market overshadowed gains overseas.

GM dropped 5 percent to 2.29 million vehicles, while Toyota posted a preliminary increase of 1.8 percent to about 2.41 million. Demand in Asia and Latin America led GM to a 16 percent rise outside of Europe and North America.

The results boosted Toyota's first-half lead to 278,000, diminishing chances that GM will extend its 77-year reign as the world's largest automaker. Last year, GM trailed in the first quarter and narrowed the gap in the second before topping Toyota by 3,100 sales for the year.

``There was not quite enough sales volume in these emerging markets to offset weakness in North America, more specifically in the U.S.,'' GM's chief sales analyst, Mike DiGiovanni, said in a conference call today. ``The short-term outlook remains challenging.''

U.S. sales for GM fell 21 percent during the April-June period, while Toyota's dropped 7.8 percent. The U.S. has been a drain on both automakers as record gasoline prices curb demand for larger vehicles, such as GM's Chevrolet Tahoe sport-utility vehicle and the Toyota Tundra pickup.

Battleground

Chief Executive Officer Rick Wagoner has said the sales title is worth battling for. The automaker touts itself as ``the global industry sales leader'' on its Web site. ``We're going to fight to keep the position, and if one day we lose it, we'll fight to get it back,'' he said in January 2007.

The company said last week it will suspend its dividend, cut management payroll by 20 percent and sell assets to shore up cash reserves by at least $15 billion. GM, which hasn't had an annual profit since 2004, also said it will post a ``significant'' second-quarter loss.

``The sales difficulties in the U.S. are going to continue; the price of fuel is just so high,'' John Wolkonowicz, an analyst with Global Insight Inc. in Lexington, Massachusetts, said in an interview. ``That's really the story for GM and Toyota: How bad was North America?''

GM gained 30 cents, or 2.1 percent, to $14.62 at 4:01 p.m. in New York Stock Exchange composite trading. Toyota's American depositary receipts fell 95 cents to $91.92.

Sales for Detroit-based GM in North America dropped 20 percent to 963,929 during the second quarter. Toyota City, Japan- based Toyota didn't provide regional figures in its release of preliminary results today.

Asian Advance

In the Asia-Pacific region, GM's total increased 15 percent. Sales advanced 2.5 percent in Europe and 18 percent in the Latin American-Africa-Middle East region.

GM, headed for its ninth straight annual U.S. sales decline, said in June it plans to cut North American truck production capacity by 700,000 units. That effort includes closing four plants that make pickups, SUVs and medium-duty trucks by 2010. The company may sell its Hummer SUV division.

Hummer's 31 percent decline in the first six months was the most among any of GM's global divisions. The automaker's Chinese Wuling unit posted an 18 percent gain in the period.

Toyota will suspend production of Tundra pickups and Sequoia large SUVs for three months beginning Aug. 8 at its factories in San Antonio and Princeton, Indiana. Tundra assembly will then be consolidated in Texas. The company also said it will make the Prius hybrid car at a new plant in Mississippi starting in late 2010 to meet surging demand, changing its initial plan to build the Highlander SUV at the factory.

Deutsche Bank said today that auto sales in the U.S. may drop to 14 million units this year, down from a previous estimate of 14.5 million. That would be the lowest in 15 years. J.D. Power and Associates today lowered its forecast to 14.2 million sales from 14.95 million in March.

The average price of a gallon of gasoline in the U.S. rose 24 percent during the second quarter to $4.09, according to motorist group AAA.

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

Last Updated: July 23, 2008 18:20 EDT