By David Schepp BBC News Online North America business reporter in Detroit

General Motors, the world's largest car maker, may be facing tough times, but its chief executive remains optimistic that the US economy and the firm's business will steadily improve throughout 2003.

We've done a great job on cost and quality Richard Wagoner

Richard Wagoner told BBC News Online that GM's use of generous incentives to drive sales of its cars and trucks would continue.

"That approach has worked well over the last couple of years," he said in an interview at the North American International Auto Show in Detroit.

"Our profits were up last year and, in fact, versus this time last year, the profits for the year... are forecast to be about twice what people expected."

GM has struggled mightily to improve its share of the US car market, which in recent years has fallen shy of 30%, suffering as Asian car makers have made vast inroads into the American market.

Making money

Japanese and Korean manufactures have built a reputation for quality and innovative designs and in turn have created legions of loyal customers.

In response, GM has aggressively promoted interest-free financing and massive rebates to drive foot traffic into showrooms across the country.

Mr Wagoner says aggressive policies are paying off

Ford Motor and Chrysler, which together with GM make up the fabled "Big Three" American car builders, have reluctantly gone along, in an effort not to surrender sales.

Mr Wagoner disagrees with critics who say the scheme is costly to the company, reducing profits and stealing future sales by forcing consumers to purchase cars and trucks now to take advantage of the special deals.

"We generated in the first nine months of last year over $6bn [�3.7bn] in cash flow from our automotive operations," he said.

"In fact, it's a formula that's worked well for us because we've done a great job on cost and quality."

Rebuilding business

Nevertheless, Mr Wagoner acknowledges fierce competition is also helping to keep a lid on profits.

With so many cars and trucks available to buyers, GM can ill afford to raise prices for fear of losing customers to other auto makers.

With that in mind, GM announced last week it was extending zero-interest financing for up to five years on the bulk of its 2003 line-up.

But GM has also taken a surgical knife to its business, eliminating jobs and loss-making divisions, such as Oldsmobile, and cutting costs to the bone.

It will take some time for the cutbacks to translate into improved profitability, which is why Mr Wagoner expressed much more optimism for 2004.

He said the underlying strength of the US economy seems to be paving the way for business demand to pick up.

"What we see is the economy beginning to pick up in the US next year - subject to some risks, which we all have to acknowledge," he said.

Those risks include a possible war in Iraq and rising oil prices.