U.S. AUTOMAKERS Despite June losses, Big Three are hopeful

U.S. automakers expected to cut production in the current quarter.
DETROIT (AP) -- U.S. automakers again struggled with market share losses and intense pricing pressure in the spring, but analysts say they're still likely to post good results when they begin reporting second-quarter earnings next week. The third quarter, however, could be another story.
Results for the April-June period at General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group likely will reflect the tug-of-war between conflicting trends in the critical North American market, Burnham Securities analyst David Healy said.
On the one hand, the Big Three's U.S. market share fell to 59 percent through June from 60.6 percent a year ago, even as consumer incentives reached all-time highs.
June in particular was a tough month for GM and Ford, the nation's two largest automakers, as they both posted unexpectedly large double-digit sales declines.
Good things
But there have been positives, Healy and other industry observers say.
For one, skyrocketing gas prices this spring seemed to have little effect on new car and truck sales, and many buyers took advantage of cash rebates and financing deals to buy more expensive models.
"Second-quarter earnings across the automotive sector should be fairly robust," said Chris Ceraso, who tracks the industry for Credit Suisse First Boston. "A key driver of the healthy earnings outlook is the fact the Big Three resisted the urge to cut production, despite inventories that ran well above normal throughout the quarter."
In a research report, Ceraso said he expects a year-over-year earnings improvement of roughly 8.5 percent in the second quarter for major automotive companies and suppliers, driven in part by steady production and a weak dollar.
Among the Big Three, Healy predicts GM to earn $2.63 a share, well above last year's $1.58 and the current Wall Street consensus of $2.24. He expects Ford to earn 56 cents a share versus 23 cents a year ago and the consensus of 50 cents. His prediction for DaimlerChrysler: earnings of 75 cents a share versus 12 cents a year ago and the consensus of 93 cents.
Prudential Equity Group's Michael Bruynesteyn predicts earnings of $2.26 a share at GM, 50 cents at Ford and 83 cents at DaimlerChrysler AG.
Ford is scheduled to report results Tuesday, GM on Wednesday and DaimlerChrysler on July 29.
Analysts say results may not be so rosy in the third quarter. Ceraso said Big Three production for the July-September period in North America is scheduled to be at the lowest level in 10 years to help clear out a glut of new cars and trucks.
Production cuts are significant because automakers consider a vehicle sold when it is shipped from the manufacturing plant to a dealer, not when the dealer reaches an agreement with a buyer. As a result, diminishing production can reduce an automaker's profits.
"To address the inventory issue, we'll see both an increase to incentives and a decrease to production schedules in the third quarter, which could weigh on earnings throughout the sector," Ceraso said.