Profits Expected at Big 3

For the first time since the global economic crisis brought the American automobile industry to its knees in 2008, all three Detroit automakers appear poised to post a profit.

Ford Motor Co., the strongest of Detroit's Big Three and the only one to make it through the crisis without a taxpayer bailout, is scheduled to report its third-quarter earnings today. All indications from the company and analysts are that it will be Ford's 10th consecutive profitable quarter, reported The Detroit News.

Chrysler Group LLC is due to report its results Friday. The Auburn Hills automaker last reported a quarterly profit in the first quarter of 2011.

General Motors Co. is slated to release its third-quarter results Nov. 9. It is expected to report a profit.

With three new national contracts with the United Auto Workers that preserve competitive gains made in tougher times — including Chrysler, which appeared Tuesday to have won ratification of its agreement with the UAW — America's automakers seem to be making the most of their new lease on life.

"It's the reincarnation of the industry," said analyst Michael Robinet of IHS Global Insight. "It's a new focus on content — delivering to the customer — and bottom-line profitability, versus yesteryear, which was about keeping your labor pool busy at all costs and expanding your top line with little focus on your bottom line."

Last week, two ratings agencies raised Ford's debt to one notch below investment grade. That was partly a result of the new national contract the company negotiated with the UAW, but also a testament to progress the company continues to make.

"The upgrades to Ford's ratings reflect the automaker's strong financial performance and continued debt reduction through the first nine months of 2011," Fitch Ratings wrote Oct. 20. "Fitch expects slowly strengthening global automotive demand and Ford's competitive product portfolio to drive continued (free cash flow) strength."

Fitch said Ford's credit rating could be restored to investment grade within the next year. That is significant, because once two of the three major ratings agencies return Ford to investment grade, the Dearborn automaker will be able to redeem all of its U.S. assets — including the Blue Oval itself — which were pledged as collateral for the $23.6 billion it borrowed in late 2006 to fund CEO Alan Mulally's turnaround plan.

To achieve that, Ford needs to continue to chisel away at debt, which stood at $14 billion at the end of June.

Ford investors are looking for a resumption of dividend payments, suspended five years ago.

Last week, Ford Chief Financial Officer Lewis Booth said dividends could be restored prior to achieving investment-grade status. Barclays Capital analyst Brian Johnson expects Ford to pay a dividend of 36 cents next year, increasing to 55 cents by 2015.

At Chrysler, the big news will be the earnings themselves. Chrysler posted a profit of $116 million in the first quarter of 2011, the first since it was taken over by Italy's Fiat SpA as part of a 2009 bailout deal brokered by the Obama administration.

The company said it made money in the second quarter, but used all that cash to pay back loans from the U.S. and Canadian governments. Now Fiat, which is struggling because of weak sales in its home market and declining demand in key overseas markets like Brazil, needs Chrysler to begin generating positive cash flow.

Speaking in Rome on Tuesday, Fiat-Chrysler CEO Sergio Marchionne promised it would.

"Chrysler is giving a fundamental contribution to Fiat's profits as it takes advantage of the improved U.S. and Canadian markets," he said. "It is running at almost double the speed compared with Fiat."

Recently, analysts have expressed concern that Chrysler could drag down Fiat. But Marchionne disputed that.

"Neither Fiat nor Chrysler would have made it alone in the long run," he said. "Fiat was too small, too penalized by the European business model to have some chance of success. Together, in 2011, we will sell 4.2 million cars, and we'll become the fifth-biggest carmaker in the world. By 2014, we will sell 5.9 million cars."

General Motors has posted six straight quarters of profits since emerging from bankruptcy two years ago.

But GM is not only posting big profits. It is also flush with cash. The company ended the second quarter this year with $39.7 billion in liquidity. The biggest question facing the Detroit-based carmaker is what to do with it all.

Analysts have suggested that GM might use its large cash reserves to buy back some of the U.S. government's remaining stake in the company.

American taxpayers became the largest owners of GM stock after giving the company $49.5 billion in 2009. The federal government sold off 412 million shares following the company's initial public offering last year, but the Treasury Department still holds 500 million shares — an overhand that some analysts say is spooking investors and weighing down GM's share price.

They say GM could remedy that by buying back some of those shares. CEO Dan Akerson was asked about that in a June interview with The Detroit News, but he declined to comment on the suggestion.