General Motors Injects New Drive Into America

General Motors yesterday reported a near-threefold improvement in profits to $1.7bn last year, defying the weak global economy and underlining its position as the world's leading car maker.

The motor manufacturer reaped the rewards of aggressive incentives in the US market and continued cost cutting in Europe where losses were halved. GM posted the earnings on record revenues of $187bn. It compared with profits of $601m in 2001.

During the fourth quarter, when GM posted a huge increase in sales, the company made a profit of just over $1bn, against $255m a year earlier. "We delivered strong results despite challenging global economic and market conditions," said chief executive Rick Wagoner. He cited "strong products, aggressive marketing, improved quality and productivity and continued cost reductions."

GM increased its market share in the US market to 29.2% in the fourth quarter, up from 28.9% a year ago, arresting what many thought was inexorable decline in the face of increased competition from Europe and Japan. Worldwide market share slipped marginally last year from 15% to 14.9%.

But doubts still remain among analysts about how long the momentum in car sales can be maintained. The sector accounted for almost all retail sales gains during December in the US. Many believe incentives are eating into future sales, although those concerns, voiced now for the past 15 months or so, have so far failed to be felt in the car lots.

GM, which precipitated the industry's move to offer price cuts and incentives after the terrorist attacks on New York, has vowed to keep the pressure on its rivals. It expects to lift production in North America by 6% to 1.43m units in the first quarter.

The relentless price war in Detroit pushed the price of new cars down by 3% in the US over the year.

Losses at GM's European operations narrowed in the fourth quarter to $129m from $240m a year ago. "We've made very good progress on the cost side in Europe," Mr Wagoner said. The Vauxhall, Saab and Opel businesses owned by GM in Europe are expected to reach breakeven this year. The weak spot was Saab, the Swedish car maker, where losses worsened.

The company is looking to take out roughly $1bn in costs, including 2,500 lay-offs, most of which have already happened. The programme, Project Olympia, is running 10% ahead of schedule. The board was expected to meet with Fiat this week to discuss means of restructuring its relationship with the troubled Italian car maker. Under a current agreement, Fiat can sell 80% of its auto business to GM in a year's time.

GM is still wrestling with a growing deficit in its pension fund. The issue has loomed so large over the company that some analysts have begun referring to GM as a pension fund with a car-making business attached. It has more than two retirees on company pension and healthcare plans for every employee.

The company last week warned that the US pension fund was underfunded by $19.3bn at the end of last year because of the deep malaise on Wall Street. It will make cash contributions to the fund of between $3.5bn and $4bn this year, lowering earnings by 25%.

Excluding one-off items, the company reported 2002 earnings of $3.9bn, more than double the previous year.