U.S. auto sales dropped in July as weakness in the housing market sapped demand, increasing pressure on the embattled Detroit-based automakers and hitting Toyota Motor Corp. (TM) with its first sales decline in almost three years.

General Motors Corp. (GM) posted a drop in sales of nearly 19 percent, a downturn that underscored the risks for the No. 1 U.S. automaker a day after it surprised Wall Street by posting stronger-than-expected second quarter results.

Ford Motor Co.'s (F) sales dropped almost 17 percent, reflecting slower showroom traffic and an 18-percent decline in sales for Ford's market-leading F-Series pickup trucks.

GM said it expected industry-wide sales had dropped about 10 percent in July. Both GM and Ford said the deepening slump put their more-optimistic full-year sales expectations at risk, a development that could prompt production cutbacks and more aggressive discounting.

Toyota, which had consistently bucked the downturn in U.S. sales, posted 3.5 percent sales decline, its first such drop since August 2004.

Sales for smaller rival Honda Motor Co. {HMC) fell 3 percent, despite stepped-up incentive spending.

On a year-to-date basis, Toyota overtook Ford in sales to claim the No. 2 position in the U.S. market, but the automaker's North American sales chief said the economy was crimping demand across the board.

"The industry stumbled this month on continued housing weakness," Toyota's Jim Lentz said in a statement.

Nissan Motor Co. Ltd. posted a 6 percent gain on stronger sales of its newer Versa subcompact and Altima sedan. By contrast, Nissan-branded truck sales dropped 10 percent.

"Some of the housing issues (and) fluctuating fuel prices are keeping consumers off balance," Nissan Division chief Bill Bosley told Reuters.

Wall Street analysts and most major automakers, including GM and Toyota, track monthly sales results after adjusting for the number of sales days.

On that basis, July had one fewer day than a year earlier, meaning an almost four-percentage-point difference between unadjusted and adjusted sales results for the month.

Chrysler Group, a majority of which is being sold off by DaimlerChrysler AG , posted an 8 percent drop in July sales on an unadjusted basis.

Analysts had expected July sales to show a year-on-year decline, but the slump at the start of the summer selling season, when manufacturers typically look to clear inventory, was more pronounced than many had anticipated.

U.S. auto sales, one of the leading indicators of consumer spending, began slowing in the second-quarter and the additional effects of a weakening housing market and relatively high gasoline prices capped demand in July, executives said.

Overall vehicle sales, including heavier trucks, had run at an annualized rate of about 16.7 million vehicles in the first half but appeared to have dropped to a rate near 15.7 million in July, GM's chief sales analyst Paul Ballew said.

MORE AGGRESSIVE DISCOUNTING

The weaker sales for the industry in July came despite stepped-up incentive spending.

On a combined basis, the average new car incentive, including cash rebates and concessional financing, cost manufacturers $2,524 in July, up 4 percent from a year earlier, according to industry tracking service Edmunds.com.

The Detroit-based manufacturers led the pack on incentives, with Chrysler at $4,82, followed by GM at $3,130 and Ford at $2,984 on average, Edmunds said.

But in a continuation of a recent trend, major Japanese manufacturers also discounted more aggressively in July.

Toyota increased its incentive spending almost 48 percent year-on-year to $1,492 per vehicle in July, while Honda's spending jumped 28 percent to $1,146, according to Edmunds.

Auto sales incentives are widely tracked by analysts as an indication of the relative profitability of competing automakers and the pressure they face to move inventory.

The market for pickup trucks, which accounts for about 13 percent of overall U.S. auto sales, has become the most fiercely contested segment, as automakers sacrifice margins with expensive sales offers in order to protect market share.

In July, GM, Ford, Toyota and Chrysler were all offering interest-free financing and cash rebates to bolster truck sales, which are closely tied to construction spending and housing starts.