General Motors has been dragged heavily into the red by the dismal performance of Italian car maker Fiat, in which it owns a 20% stake.

All in all [it was] a pretty good quarter in a tough environment

John Devine, GM finance chief

The world's biggest automotive firm reported a net loss of $804m (�516m) for the three months to the end of September, thanks to the need to lower the valuation of its Fiat stake by $2.2bn.

The Italian car firm, battered by years of declining sales, has slashed costs and output, but may have to be rescued by the Italian state, or by GM itself.

When asked by BBC's World Business Report on how GM might deal with Fiat, chief financial officer John Devine refused comment, saying he did not want to add to speculation, heightened recently by scrutiny in the Italian press.

For its part, Fiat said GM's write-down of its stake undervalued the Italian company, based on its long-term prospects and the value of its brand.

Sales drive

Fiat aside, GM had a respectable quarter's trading, with sales edging slightly up - from $42.5bn a year ago to $43.6bn - at a time of relative depression for the car sector.

The US market has remained surprisingly robust

Mr Devine told the BBC the company's overall strategy of building desirable products and forcefully cutting costs and aggressively marketing cars and trucks had proved successful.

"That strategy has been working for us - certainly here in North America."

He said the company was pleased with its third-quarter result.

"All in all [it was] a pretty good quarter in a tough environment," he told the BBC.

In North America, GM expects the torrid pace of car sales to slow during the last three months of 2002 and most of 2003.

In Europe, however, he expects sales to be flat.

"We're still struggling in Europe," Mr Devine said. "We reduced the loss from last year, but we're still losing money."

At the heart of GM's robust sales in North America lay a determined effort in the wake of September 11.

Pension hit

Fearful of a collapse in its core US market, GM pioneered interest-free financing and other generous perks.

These gambits have helped shift vehicles, but have also made the industry's profit margins even thinner.

GM's shares have, however, easily outperformed those of close rival Ford this year.

After the results announcement on Tuesday, Mr Devine said the company's North American business would have to take account of rising pension expenses.

"They're going to be very aggressive on cost reductions," he said.

"The size of this pension will... require us to have an increase in structural cost next year for North America."

GM pensions support about 450,000 retired workers and their spouses in the US.

The company employs about 195,000 in the US.

Harley Davidson motors on

A world famous maker of two-wheeled transport also reported its third-quarter results on Tuesday.

Harley-Davidson - maker of the legendary motorcycles - said strong demand for its bikes had helped it post profits of $165m, up from $111.7m in the same period last year.

Revenue for the three month period rose 31.8% to $1.14bn.

The company said the strong demand for its bikes meant it was lifting its production target by 1,000 to 263,000 bikes for this year, and setting a target of 289,000 for 2003.