DETROIT -- For a time, it looked as though Detroit's three automakers could do no right, losing billions while cranking out inefficient trucks just as gas prices rose above $3 per gallon.
But recent quarterly profits by General Motors Corp. and Ford Motor Co. have given the Motor City a little hope that better days are ahead, even though both companies made most of their money overseas.
Of course, good news could be bad news in the auto industry, where companies are hashing out a new contract with its hourly workers.
Today, GM ran its string of profitable quarters to three when it announced second-quarter net income of $891 million.
Earnings growth in Europe, Latin America, Asia and other areas eclipsed lingering problems in North America. Although GM improved in its back yard, it still posted a net loss of $39 million there.
Last week, Ford posted its first quarterly profit in two years at $750 million but warned that it hadn't turned the corner to sustained profitability. Chrysler Group's second-quarter earnings results have been delayed until August by the pending sale of 80.1 percent of the company to Cerberus Capital Management LP.
The second-quarter profits may be bad timing, coming on the heels of the formal start to contract talks with the United Auto Workers, although analysts say the companies can still point to losses in North America to show the need for concessions.
Several industry analysts said that while signs of trouble remain at both Ford and GM, the profits are still good news. At least for now, bankruptcy talk has subsided.
"I think it's brightening up," David Healy, an analyst with Burnham Securities, said of the clouds that had been hanging over Detroit. "Both companies have shrunk about one-third of their hourly work force and they've closed a lot of plants. They're basically adjusting to the level of business that they're doing now."
Peter Nesvold, an automotive analyst for Bear, Stearns & Co., said Detroit is starting to see the results of changes in product lineups due to higher gas prices and competition from Japanese automakers.
"I think that's what the last two years have been about," he said. "It's been responding, albeit late, to the shift in consumer preference and the ongoing competitive threat from the new domestics."
At GM, the second-quarter profit was a huge reversal from the $3.4 billion loss it posted in the same period last year. The automaker's shares fell 21 cents to close at $32.40 in trading today after rising as high as $34.65 earlier in the session.
"Our heavy commitment to key growth markets around the world really paid off in strong growth and earnings," Chairman and Chief Executive Officer Rick Wagoner said in a statement.
The net loss in North America was a major improvement over the second quarter of last year, when GM lost $3.95 billion.
In the second quarter of 2006, GM took a giant after-tax charge of $3.7 billion for early retirement and buyout offers that eventually reduced its hourly work force by more than 34,000.
The latest profit amounted to $1.56 per share for the April-June period, compared with a loss of $5.98 per share a year ago.
Revenue fell to $46.8 billion from $53.9 billion a year ago due largely to the sale of 51 percent of GM's former financial arm, GMAC Financial Services.
The latest profit total included $520 million in charges associated with the bankruptcy reorganization of Delphi Corp., GM's former parts arm, and other North American restructuring costs.
The company said its net income from continuing global automotive operations was $618 million, compared with a net loss of $3.48 billion in the year-ago period.
In Europe, the company had net income of $217 million, vs. a net loss of $39 million in the same quarter last year. The company's Asia Pacific unit posted a net profit of $227 million, compared with $376 million in the year-ago quarter, which included $212 million from the sale of GM's interest in Japanese automaker Isuzu.
In its Latin America, Africa and Middle East unit, GM said explosive growth helped it to its best quarterly net income in a decade at $213 million vs. $139 million a year ago.
Chief Financial Officer Fritz Henderson said GM is confident it will achieve its target this year of $9 billion worth of annual cost cuts.
He would not predict when GM would make a net profit in North America, but said restructuring costs for Delphi should be less in the second half of the year.
Mr. Henderson predicted revenue growth in emerging markets for the third quarter while sounding a note of caution for North America, mainly due to weak home sales and high fuel prices, which have reduced pickup truck sales.
For the remainder of the year, he said GM expects continued improved automotive earnings and improved but negative operating cash flow.
Mr. Henderson would not comment when asked what impact the quarterly profit might have on the union contract talks.
The Detroit Three want to cut a $25 per hour labor cost disparity with their Japanese competitors. Analysts have said reducing labor costs is critical to their long-term viability.
GM said its revenue per vehicle increased $1,540 in the quarter compared with the year-ago period, reflecting a more profitable product mix, reduced low-profit fleet sales and its strategy of bringing sales prices closer to the sticker and relying less on incentives.
Already, though, the company has been forced to raise incentives on some pickup models, including zero percent financing for 60 months on extended and crew cab models to counter a highly competitive market.
Mr. Nesvold predicted that GM would continue to sputter in North America for several years while making money overseas, but Efraim Levy, senior industry analyst for Standard & Poor's, said the company can't rely on emerging markets for profit because of volatility and extreme competition.
In the end, he said, long-term recovery rests with making money in North America.
"Ultimately the biggest and the best market is the home market, and that's what they have to improve on," he said.
But recent quarterly profits by General Motors Corp. and Ford Motor Co. have given the Motor City a little hope that better days are ahead, even though both companies made most of their money overseas.
Of course, good news could be bad news in the auto industry, where companies are hashing out a new contract with its hourly workers.
Today, GM ran its string of profitable quarters to three when it announced second-quarter net income of $891 million.
Earnings growth in Europe, Latin America, Asia and other areas eclipsed lingering problems in North America. Although GM improved in its back yard, it still posted a net loss of $39 million there.
Last week, Ford posted its first quarterly profit in two years at $750 million but warned that it hadn't turned the corner to sustained profitability. Chrysler Group's second-quarter earnings results have been delayed until August by the pending sale of 80.1 percent of the company to Cerberus Capital Management LP.
The second-quarter profits may be bad timing, coming on the heels of the formal start to contract talks with the United Auto Workers, although analysts say the companies can still point to losses in North America to show the need for concessions.
Several industry analysts said that while signs of trouble remain at both Ford and GM, the profits are still good news. At least for now, bankruptcy talk has subsided.
"I think it's brightening up," David Healy, an analyst with Burnham Securities, said of the clouds that had been hanging over Detroit. "Both companies have shrunk about one-third of their hourly work force and they've closed a lot of plants. They're basically adjusting to the level of business that they're doing now."
Peter Nesvold, an automotive analyst for Bear, Stearns & Co., said Detroit is starting to see the results of changes in product lineups due to higher gas prices and competition from Japanese automakers.
"I think that's what the last two years have been about," he said. "It's been responding, albeit late, to the shift in consumer preference and the ongoing competitive threat from the new domestics."
At GM, the second-quarter profit was a huge reversal from the $3.4 billion loss it posted in the same period last year. The automaker's shares fell 21 cents to close at $32.40 in trading today after rising as high as $34.65 earlier in the session.
"Our heavy commitment to key growth markets around the world really paid off in strong growth and earnings," Chairman and Chief Executive Officer Rick Wagoner said in a statement.
The net loss in North America was a major improvement over the second quarter of last year, when GM lost $3.95 billion.
In the second quarter of 2006, GM took a giant after-tax charge of $3.7 billion for early retirement and buyout offers that eventually reduced its hourly work force by more than 34,000.
The latest profit amounted to $1.56 per share for the April-June period, compared with a loss of $5.98 per share a year ago.
Revenue fell to $46.8 billion from $53.9 billion a year ago due largely to the sale of 51 percent of GM's former financial arm, GMAC Financial Services.
The latest profit total included $520 million in charges associated with the bankruptcy reorganization of Delphi Corp., GM's former parts arm, and other North American restructuring costs.
The company said its net income from continuing global automotive operations was $618 million, compared with a net loss of $3.48 billion in the year-ago period.
In Europe, the company had net income of $217 million, vs. a net loss of $39 million in the same quarter last year. The company's Asia Pacific unit posted a net profit of $227 million, compared with $376 million in the year-ago quarter, which included $212 million from the sale of GM's interest in Japanese automaker Isuzu.
In its Latin America, Africa and Middle East unit, GM said explosive growth helped it to its best quarterly net income in a decade at $213 million vs. $139 million a year ago.
Chief Financial Officer Fritz Henderson said GM is confident it will achieve its target this year of $9 billion worth of annual cost cuts.
He would not predict when GM would make a net profit in North America, but said restructuring costs for Delphi should be less in the second half of the year.
Mr. Henderson predicted revenue growth in emerging markets for the third quarter while sounding a note of caution for North America, mainly due to weak home sales and high fuel prices, which have reduced pickup truck sales.
For the remainder of the year, he said GM expects continued improved automotive earnings and improved but negative operating cash flow.
Mr. Henderson would not comment when asked what impact the quarterly profit might have on the union contract talks.
The Detroit Three want to cut a $25 per hour labor cost disparity with their Japanese competitors. Analysts have said reducing labor costs is critical to their long-term viability.
GM said its revenue per vehicle increased $1,540 in the quarter compared with the year-ago period, reflecting a more profitable product mix, reduced low-profit fleet sales and its strategy of bringing sales prices closer to the sticker and relying less on incentives.
Already, though, the company has been forced to raise incentives on some pickup models, including zero percent financing for 60 months on extended and crew cab models to counter a highly competitive market.
Mr. Nesvold predicted that GM would continue to sputter in North America for several years while making money overseas, but Efraim Levy, senior industry analyst for Standard & Poor's, said the company can't rely on emerging markets for profit because of volatility and extreme competition.
In the end, he said, long-term recovery rests with making money in North America.
"Ultimately the biggest and the best market is the home market, and that's what they have to improve on," he said.
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