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Toyota Motor Corp. (TM) will slash capital and research spending for a second year in a move that threatens to erode a significant advantage it holds over ailing U.S.-based rivals.

Toyota said Friday its budget for this financial year will cut capital spending by more than a third, to $8 billion from $13 billion. Research and development funding will be reduced by about 10%, to $8 billion from $9 billion.

The deep reductions planned on spending for everything from vehicle development to factory improvements also are likely to further strain cash-strapped parts suppliers.

Such steps would have been unthinkable a couple of years ago from Toyota. The company in recent years has poured billions into new factories and products in a steady march to taking General Motors Corp.'s (GM) place as the world's largest auto maker based on sales.

The spending cuts, announced as Toyota reported its largest-ever quarterly loss, come along with deep reductions planned in labor and administrative costs.

To minimize the impact of the cuts, Toyota plans to focus spending on developing fuel-efficient compact and hybrid vehicles and advancing fuel-savings technologies.

But the reductions could mean more pain for parts makers already grappling with deep production cuts by General Motors, Chrysler LLC and, to a lesser extent, Ford Motor Co. (F).

They also could have longer-term implications for Toyota.

The auto maker's deep pockets have long given the company an edge over Detroit auto makers, which have raced to slash spending as losses pile up.

Toyota, for instance, had an ample cushion that allowed it to sustain years of substantial losses on the Prius hybrid. Over time, the vehicle has become a top seller and an icon of environmentalism that gave Toyota a green image when it mattered most.

GM has oft lamented that it lacked the recourses to take a Prius-like risk. GM's maker's effort to fight back with the battery-powered Chevrolet Volt came too late to save the company from the bankruptcy threat that now looms.

Notably absent, however, from GM's most-recent list of wrenching cost cuts was a reduction in capital spending. GM Chief Financial Officer said last week the company had decided it can't afford to further whittle down investments in new products.

Toyota, while under far more strain than a year ago, remains in a markedly better position than its Detroit rivals. Even the company's reduced spending dwarfs GM's budget.

GM last year said it would cut capital spending to $4.8 billion in 2009 and in 2010, down from $9 billion.

- By Sharon Terlep, Dow Jones Newswires; 248-204-5532; sharon.terlep@dowjones.com.