Updated from 12:21 p.m. EDT

Dragged down by a poor performance in Europe,

General Motors

(GM) - Get Report

, the world's biggest automaker, said Thursday that its third-quarter profits fell 5.5%, and it emphasized the need for more aggressive cost-cutting.

Net income for the three-month period ending Sept. 30 declined to $829 million from $877 million a year earlier. Earnings per share, however, rose more than 16% to $1.55 from $1.33 in the comparable period of last year because of continuing stock repurchases. Wall Street had anticipated earnings of $1.54 a share, according to

First Call/Thomson Financial

.

GM's European operations recorded a loss of $181 million, a stark difference from the $32 million profit gained in the comparable period of 1999. Heightened competition, coupled with the start-up of a new model of GM's highest-volume car, hurt results across the Atlantic Ocean, according to the Detroit-based company.

The Battle in Europe

A battle for consumers in Europe, particularly in the U.K. and Germany, has become even fiercer, cutting into GM's market share, which dropped to 8.9% in the latest quarter from 9.8%.

On top of that, analysts say, higher fuel prices and other factors are stifling demand in Germany, a country that typically generates substantial sales for GM and

Ford

(F) - Get Report

.

"It's not a GM specific issue," said David Bradley, who tracks the company for

J.P. Morgan

and rates its stock a long-term buy. "It's an industry-wide issue."

In addition, GM's "uninspiring models" threaten to further erode the company's market share in Europe, added Jonathan Lawrence, an analyst at

Dain Rauscher Wessels

. The carmaker's new Corsa model in Europe is part of a stepped-up effort to pique consumer interest, but Lawrence said its introduction "may be too little, too late."

Ultimately, analysts say, cost-cutting measures will prove most effective in turning earnings around in European nations. GM has consolidated plants in Germany, Bradley noted, and has begun joint ventures with other car companies, including

Fiat

, in a bid to eliminate waste.

Sagging shares of GM, well off a 52-week high of $94.63 hit last spring, closing Thursday regular trading down $1.25, or 2%, at $57.37

The loss in Europe detracted from a strong showing in North America, where GM posted earnings of $728 million, up 8.5% from $671 million a year earlier. GM said improvements in material and manufacturing costs offset higher marketing and incentive costs.

"Demand remains strong in North America, but the pricing environment is extremely competitive and is forcing all players to accelerate cost reductions," John Smith Jr., GM's chairman, said in a statement.

Strong Demand

GM also made strides in other regions. Earnings in Latin America, Africa and the Middle East made a sharp reversal, going from a loss of $36 million in the third quarter of 1999 to a profit of $31 million in the latest quarter. Losses in the Asia Pacific region, meanwhile, narrowed to $10 million from $54 million a year ago.

But the fourth quarter does not look much brighter. Although North American profits are expected to remain consistent with the results in the final quarter of last year, earnings in Europe and the Asia Pacific region are likely to be in "a significant loss position," the company said.

GM said overall revenue dipped slightly to $42.6 billion in the third quarter from $42.8 billion a year earlier.

Fueled by growth in the DirecTV service, which added 450,000 subscribers in the U.S., GM's

Hughes Electronics

(GMH)

unit saw revenue climb 4.5% to $2.1 billion in the latest quarter, but Hughes' losses widened to $88 million from $30 million, according to GM.

GM said it was considering "strategic transactions" that could separate the Hughes unit from the company.