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.

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. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!