Toyota Motor Co. (NYSE: TM) reported encouraging earnings of 7 cents a share (net income of $232 million) last week for its second quarter, which beat analyst estimates of a $275 million loss by a wide margin. This was an 84% dip in net profit from $1.49 billion, or 47 cents a share last year, with revenue down to $50 billion from $55 billion in last year's same quarter, but the company slashed its projected loss for the fiscal year to $2.2 billion from $5 billion. Despite the profit dip, the report showed signs of Toyota reversing its profit direction after a harsh year.

IN PICTURES: Learn To Invest In 10 Steps

Ford's Surprise
Last week Ford (NYSE:F), which avoided the fate of bankruptcy unlike its American rivals Chrysler and General Motors, turned in a nearly $1 billion profit in its third quarter. The $997 million net income, despite an $800 million drop in revenue, came along with positive news by Ford of predicted profitability in 2011. New products and vigorous cost-cutting along with aggressive pursuit of market share as well as Cash For Clunkers were all contributing factors.

Nissan Motors (OTC:NSANY) recently posted a quarterly profit of $922 million, which was 25% lower than last year's July-September quarter, but the company changed its year-long forecast to project a profit of $1.3 billion instead of the $1.1 billion loss it had earlier projected.

Japan's other major automaker, Honda Motor Co. (NYSE:HMC), meanwhile reported U.S. October sales off by 0.4%, with U.S. car sales falling 3.7% but U.S. truck sales rising 4.5%. German automaker Daimler AG (NYSE:DAI), on the other hand, showed a 9% sales increase in the U.S. in October. So whether it was Cash For Clunkers or a more substantive move, many of the automakers are finding at least an easing of the horrendous sales climate of the past year.

What's Ahead
The question most observers are asking is whether the improvement in the auto industry's sales picture is a sustainable one. Have sales merely been boosted temporarily by Cash For Clunkers, which may have simply brought in future sales early? Time will tell as the economy continues to emerge from recession at its own speed, but there are at least encouraging signs in the auto industry.

Ford has re-tooled its product line and has aggressively developed new brands which the company sees as strong growth products long term. GM and even Chrysler have necessarily tightened their operations post-bankruptcy, and will continue, particularly in Chrysler's case, to implement major changes in operations. The Japanese automakers are also cutting costs and responding, albeit slowly, to the new market realities. Daimler seems to be sitting comfortably in its luxury market, an upscale niche that is rebounding if recent Mercedes-Benz sales are any indication.

Cautions
There are at least yellow lights ahead. While most of the companies feel their improvements are not solely due to Cash For Clunkers, they also are uneasy about the uncertainty of the consumer and the economic recovery. The sales improvements are, thus far, encouraging but have not yet proved lasting. Continued work on product lines, finances and operations will be crucial. No one is predicting a return of the overall global auto sales figures to pre-recession levels anytime in the near future. Added to this, the revived health of many of these companies, along with other solid competitors such as Hyundai and Volkswagen, make the battle for the tighter market that much tougher.

Long-term investors need to monitor the ongoing progress and performance of the auto stocks as potential investments very closely and carefully. The bright side is that at least the automakers are no longer going in reverse. They may not be in drive yet or first gear, but maybe they're out of reverse and have shifted into neutral. (To learn more, read Analyzing Auto Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  2. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  3. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  4. Investing News

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  5. Investing

    Retirees: 7 Lessons from 2008 for the Next Crisis

    When the last big market crisis hit, many retirees ran to the sidelines. Next time, there are better ways to manage your portfolio.
  6. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  7. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  8. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  9. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  10. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center