Toyota Motor Corp <7203.T>, the world's biggest automaker, forecast a much deeper-than-expected annual loss of $8.6 billion as sales tumble, keeping dozens of its factories underused.

Toyota booked a $6.9 billion loss for the January-March fourth quarter and cut its annual dividend for the first time since at least 1994, when it changed its reporting period.

The global downturn that has battered demand for cars and pushed U.S. rival Chrysler into bankruptcy, has hit Toyota badly as it went from rapid expansion to overcapacity almost overnight. The Japanese giant posted its first-ever consolidated operating loss last year after a record profit the year before.

While the entire industry is caught in the slump and manufacturers are selling cars that have piled up in stockyards, Toyota has been especially vulnerable due to its exposure to the United States and Japan, where sales have plunged to multi-decade lows. Customers, fearing for their jobs, are putting off big-ticket purchases.

My first impression is bad. Toyota's outlook was worse than I had expected. The company expects a really tough time for the first six months, said Naoki Fujiwara, a fund manager at Shinkin Asset Management.

I expect the bottom for the auto industry is the April-June period, followed by a slow recovery.

For the year to next March, the maker of the Prius hybrid car forecast an operating loss of 850 billion yen, more than double the average forecast in a survey of 20 analysts by Thomson Reuters and larger than the 700 billion yen loss predicted earlier on Friday by the Nikkei newspaper.

On a net basis, Toyota sees an annual loss of 550 billion yen.

Toyota said it expected its global sales to fall about 14 percent to 6.5 billion yen in 2009/10. It forecast 830 billion yen in capital spending, down from 1.3 trillion yen a year earlier.

Toyota reported a January-March operating loss of 682.5 billion yen ($6.93 billion), versus a 396.7 billion yen profit a year earlier and a consensus estimate for a loss of 689 billion yen in a survey of 21 analysts polled by Thomson Reuters.

Its net loss was 765.8 billion yen, swinging from a profit of 316.8 billion yen in the same period a year ago.

Domestic rival Honda Motor Co <7267.T> last week forecast a small profit for this year thanks to its relatively healthy motorcycle business.

But many others are in dire straits, running dangerously low on cash to stay solvent.

General Motors Corp on Thursday reported a first-quarter net loss of $6 billion and said it burned through more than $10 billion as it relied on a federal bailout to ride out the sharp sales decline that overwhelmed its cost-cutting efforts.

GM's quarterly revenue was almost halved to $22.4 billion as the company cut production by about 900,000 vehicles and worked to run down costly inventories in the United States and Europe.

Japan's Fuji Heavy Industries Ltd <7270.T>, in which Toyota owns a 16.5 percent stake, on Friday posted an operating loss of 5.8 billion yen in 2008/09 and expects that loss to swell to 35 billion yen this year citing weak global car sales.

Toyota is hoping the launch later this year of the third-generation Prius will ease some of its sales slide and production cuts. At the same time, though, it has decided to cut the price of the popular model to bring it closer to Honda's new Insight hybrid.

Toyota is reducing overhead costs after putting a third of its 74 global assembly lines on single shifts. It has said it wants to cut fixed costs by 10 percent, or roughly $5 billion, this financial year, partly through work-sharing, salary cuts and other measures. It also plans to slash capital spending by delaying expansion projects until demand recovers.

It cut its annual dividend to 100 yen for the year just ended from 140 yen in 2007/08.

Shares of Toyota have risen 39 percent in the year to date, underperforming a 47 percent rise in Tokyo's transport sub-index <.ITEQP.T>.

Before the results were announced, Toyota ended down 1.5 percent at 3,980 yen.

(Editing by Ian Geoghegan)

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