The Detroit-based car giant said profits for quarter came in at $901m, (�540m), down by nearly a third compared with the same period last year.

It blamed the rising cost of cheap car finance deals aimed at luring consumers into its showrooms, and tornado damage to its plant in Oklahoma City.

The Oklahoma factory, which makes top-selling sports utility vehicles, was forced to close down for about a month.

Pay talks

At the same time, the company said it was holding onto the $13bn it raised to refinance its pension fund from a huge bond sale last month until unions had signed up to a new pay deal.

The move, the company said, was simply "prudent financial planning, not a labour strategy".

But the decision to hold off on patching the $19.3bn shortfall in its pension fund until it resolves what could be difficult negotiations later this year could represent a fallback in case strikes loom.

While most analysts think action is unlikely, problems could arise if the company wants to cut back on its solid healthcare insurance, a tactic the unions say would be a deal-breaker.

"If they do, by some chance, get into a long strike situation, it would be nice to have $13bn around to fund operations while they're shut down," said automotive analyst David Healy from Burnham Securities.

Positive outlook

But the company cheered investors by predicting that it would beat analysts' profit forecasts for the third quarter.

It also said it could hit its own full-year profit target of $5 per share after all, reversing a warning which forced its share price sharply lower in April.

The company's upbeat forecasts helped lift its shares eights cents to $36 in early trade on Wall Street.

The US car industry, hit by competition from Japanese rivals and burdened by rising staff pension costs, has been having a tough time of it in recent months.

GM and its rivals, eager to bolster sales at a time of economic uncertainty and hesitant consumer spending, have been locked in a bitter price war for much of the past two years.