The president of General Motors Corp. conceded here tonight that U.S. automakers are at a competitive disadvantage in producing small cars, which account for most of the sales in the domestic and international auto markets.

U.S. automakers, as a result, must rely on foreign manufacturers for supplies of small cars, particularly those with front-wheel drive, GM President F. James McDonald said in an opening address to the seventh annual Automotive News World Congress.

"I doubt if any American car producer prefers to take this route," McDonald said in a prepared speech released in advance of his address. But, he said, "competitive economics at the lower end of product offerings" make it impossible for domestic manufacturers "to build small cars competitively in this country."

McDonald said he is "hopeful that . . . current research and development" will improve domestic ability to fight in the small car wars. But U.S. companies cannot afford to wait until competence catches up with consumer demand, he said.

"Small cars are now taking about 60 percent of all U.S. auto sales. And imports account for 40 percent of this market segment," McDonald said. Joint ventures with foreign companies, both in manufacturing and sales, are interim measures that "will assure that U.S. car makers retain a strong and competitive presence" in the small car market, the GM president said.

McDonald's words seemed to support some domestic auto industry analysts who have been saying that, for the time being, GM has decided to join with its Japanese competitors in an attempt to solve its small car problems.

"As long as the Japanese have the ability to produce higher-quality vehicles at lower cost, they will have the ability to undercut the price structure and gain market share," Harvey E. Heinbach, an analyst at Merrill Lynch Pierce Fenner & Smith Inc., said this month in a report on GM. He said GM's "current product plans suggest that management does not believe it has the ability to produce small cars competitively in the U.S."

GM, the largest American automaker, is talking with Toyota about the possibility of annually producing 200,000 small front-wheel drive cars at a domestic GM plant, beginning in 1985. GM already has agreed to purchase 200,000 front-wheel drive Suzuki minicars, beginning in 1984, Heinbach said. And GM has entered a similar arrangement with Isuzu, which plans to supply 150,000 of its ST cars to GM in 1984.

McDonald denied, however, that the small-car deals mean that the Japanese enjoy overall superiority in auto manufacturing.

"I salute the Japanese as good allies and as good competitors. But I'm tired of hearing people say that American industry should take a back seat to the Japanese -- or anyone else.

"It's time to stop demeaning our own competence," McDonald said. "Tonight, I offer this advice to every automotive producer on either side of the oceans: The American giant is awake and in full stride. The changes we are making are far-reaching, and when we are through, we will have restructured the entire auto-producing sector of our country," he said.