NEW YORK (CNN/Money) - General Motors Corp. said Thursday it expects lower earnings in 2003 as it warned that its increasing pension costs will hit the bottom line.

The world's largest automaker said it expects to earn $5.00 a share, excluding results for Hughes Electronics and special items. Analysts surveyed by earnings tracker First Call expect the company to earn $4.82 a share in 2003, but that number includes a loss at Hughes, which is expected to reduce GM earnings by about 20 cents a share in 2003, meaning the new forecast is close to estimates.

For 2002, GM is expected to earn $6.54 a share excluding special items but including an estimated loss of 40 cents a share from Hughes.

Some analysts had been expecting even deeper pension costs and problems, and the guidance from GM (GM: up $1.09 to $39.30, Research, Estimates) helped lift shares in Thursday morning trading.

The company said underfunding of its pension plan soared to $19.3 billion at the end of 2002, more than double the $9.1 billion underfunding a year earlier, as the plans' assets lost 7 percent of value due to stock market declines. GM said its pension expense should be about $3 billion before taxes in 2003, up from $1 billion before taxes in 2002.

GM Chief Financial Officer John Devine told analysts at a presentation in Dearborn, Mich., Thursday that without the increase pension costs, as well as Hughes and special items, GM earnings per share would rise to $7.55 a share in 2003.

"We're not ignoring pensions. They're real; we're dealing with them," he said. "But our core operating earnings are continuing to improve in a year we expect (vehicle sales) volume to be down slightly."

GM lowered its estimate of long-term return on assets in 2003 to a 9 percent average annual gain from its earlier assumption of a 10 percent gain. The reduced interest rate environment also lowered the discount rate, which is used to calculate the present value of future pension liabilities, to 6.75 percent from 7.25 percent in 2002, further increasing the plan's underfunding.

The $19.3 billion underfunding at the end of the year is actually a little better than its earlier estimate at the end of the third quarter of a $23 billion underfunding. The 7 percent decline in asset value is also a bit better than an earlier 9 percent decline estimate.

Devine pointed out that the $19.3 billion underfunding is not significantly worse than the $18.5 billion underfunding at the end of 1993. The company ended 1997 and 1998 with slight underfundings of their plans, despite the bull markets those years, before ending 1999 and 2000 with overfunded positions.

"We've been here before," he said. "We don't like to be here, but we've been here before and we know what to do and how to do it, even if we don't expect the same bull market that we saw in the '90s."

The company said it is expecting industrywide U.S. sales of 16.5 million vehicles this year, down about 2 percent from the 16.8 million cars and light trucks, such as sport/utility vehicles, pickups and minivans, sold in 2002. Devine said the company thinks there is a less than 20 percent chance of a severe downturn in the economy and U.S. vehicle sales in 2003.

But he noted that even if U.S. industry sales fall 15.5 percent as part of a general downturn, GM expects to be able to earn at least $1.00 a share in 2003 and generate a positive cash flow.