Sales of gas-guzzling sports utility vehicles are falling

The group said it now expects to lose $1.50 (78 pence) per share in the first three months of the year, compared to previous forecasts of breaking even.

In January, GM said net profits had sunk 37% to $630m in the last quarter of 2004, from $1bn a year earlier.

GM shares closed down 14% at $29.01 - a 12-year low - with its euro-denominated bonds weakening sharply as well.

The company's earnings forecasts for the year have also been slashed to $1-2 a share from the $4-5 per share previously forecast.

The fall also prompted credit rating agency Standard & Poor's to downgrade its outlook for GM - which shunted the world's biggest carmaker closer to junk status.

A downgrade to junk level could significantly raise the company's borrowing costs.

Clearly we have significant challenges in north America Rick Wagner, GM chief

Rising costs

Piling on the bad news, the car maker added it expected a negative cash flow of $2bn for the year - mainly due to a slump in its north American business - even before it pays out $2bn to resolve its dispute with Fiat.

The figure also does not include the cost of a broad restructuring drive at its European operations.

The company is cutting 12,000 jobs across the continent in an effort to boost profitability.

"Clearly we have significant challenges in North America," GM chairman and chief executive Rick Wagoner said.

"The rest of our automotive businesses ... are running in line, or ahead of, our expectations.

"But North America is our biggest business, and the key driver of automotive earnings and cash flow. So it's important we get this business right," he added.

Production cuts

Despite the launch of several new models over the past year, GM said it was cutting production plans by 70,000 vehicles in the US in the face of growing stockpiles.

Earlier this month the company said it would be cutting production in North America by 3%, after announcing sales had fallen 12.7% in February compared to a year earlier.

It had already reduced output by around 9% in the face of growing stockpiles.

US carmakers have been hit hard by an foreign invasion of the US market - last month the only US company to reveal an increase in sales was DaimlerChrysler.

Toyota, Nissan, Hyundai and even Suzuki have all been nibbling away at the market as Americans increasingly turn away from gas guzzling sports utility vehicles in favour of more efficient models.