With U.S. auto sales expected to stabilize at 13 million to 14 million units a year, it should be more than enough for the “Detroit Three” — Auburn Hills, Mich.-based Chrysler Group LLC, Dearborn, Mich.-based Ford Motor Co. and Detroit-based General Motors Corp. — not only to survive but grow at a healthy pace, analysts say, provided they have strong product lineups.

From 2001 to 2007, Americans bought an average of 16.7 million vehicles a year; but many of those sales were fuelled by discounting and incentives. Thus, the companies lost money on many sales and bankruptcy resulted for both Chrysler and GM.

But with U.S. auto sales expected to reach only 11.5 million to 12.5 million units in 2010, all three companies had operating profits in the quarter ended March 31, as they have all become much leaner.

However, longer-term survival will be about product, says Dennis DesRosiers, president of Richmond Hill, Ont.-based DesRosiers Automotive Consultants Inc.— and good product takes time to develop. Ford already has a good product lineup, and this is reflected in steady increases in market share. However, GM is still losing market share, while Chrysler has stabilized at levels that, DesRosiers says, are too low for long-term profitability.

Erich Merkle, president of Grand Rapids, Mich.-based Autoconomy.com, says 2012 will be a “pretty good year” for GM, and adds that the products the company is already putting out are being well received.

And the reception that new Chrysler products receive this autumn will surprise on the upside, Merkle says. But he notes that there are question marks in the longer term because the company is now being operated by Italy-based Fiat SpA, which owns 20% of Chrysler. Much depends on market reception of vehicles designed under the aegis of Fiat and whether there are problems on the production end using Fiat’s platforms.

Chrysler is the weakest of the three automakers. First, it has a smaller market share, at 9.4% in the four months ended April 30 vs 16.7% for Ford and 18.7% for GM. Furthermore, Chrysler has had a rocky history since 1998.

The company was first merged into Ger-many-based Daimler AG; then, it was sold to New York-based private-equity firm Cerberus Capital Management LP in 2007. Finally, it went bankrupt in April 2009 but has since re-emerged with new ownership: the United Auto Workers voluntary employee beneficiary association owns 67.7%; Fiat, 20%; the U.S. government, 9.8%; and the Canadian government, 2.4%.

The result has been a lack of consistency in management or direction, says Merkle. DesRosiers adds that the company’s research, design, development and testing capacity were all gutted, leaving Chrysler completely dependent on Fiat’s capabilities in these key areas.

GM also went bankrupt in 2009, but had been managed consistently until then. It is now 61%-owned by the U.S. Treasury; 17.5% by the UAW; 9.8% by Motors Liquidation Co. bondholders; 7.9% by Canada Development Invest-ment Corp.; and 3.8% by the Ontario government.

Ford is in the best shape of the three, as it is still public and is steadily increasing market share. Ford is expected to overtake GM in market share in the next year or so.

An April 28 report issued by New York-based UBS Securities LLC had a “buy” rating on Ford, but an April 28 report issued by J.P. Morgan Chase & Co. Inc., also based in New York, rated Ford as “neutral.”

DesRosiers is “cautiously optimistic” that GM and Chrysler will both survive, given the improving market, but says this isn’t certain.

However, the three companies are much different today, both from each other and from their former selves, DesRosiers says: “You can’t lump them together any more.”

Chrysler is being run out of Italy, while Ford and GM are managed in North America. GM is global; Chrysler is North American; and Ford is in between. Ford and GM both have good research, design, development and testing departments, but Chrysler’s are all gone.

The Detroit Three have learned some, but not all of the lessons they should have from the recent crisis, DesRosiers says, noting that they are still chasing volumes through incentives and discounting.

@page_break@However, Carlos Gomes, senior economist with Bank of Nova Scotia’s economics department in Toronto, points out that as all three had an operating profit in Q1 2010, he thinks they are now disciplined and won’t sell vehicles at a loss again.

Getting out from under government and union ownership is essential — and the sooner the better, says DesRosiers. GM is talking about an initial public offering later this year or in 2011, while Chrysler hasn’t put a time frame on an IPO. DesRosiers notes, though, that the UAW’s shares in Chrysler will have to be sold if the UAW is to meet the health-care commitments it took on during Chrysler’s restructuring.

With auto sales recovering, auto-parts manufacturers are also benefiting. Indeed, DesRosiers says, the North American auto-parts sector is in the best position it’s been in years because it has lowered its dependence on the Detroit Three to 70%-80% from almost 100%. But that’s still too high, as the Detroit Three’s North American market share, combined, is only about 45% — the level at which analysts say it will probably stay for the longer term.

Recent UBS reports had “buy” ratings on Aurora, Ont.-based Magna International Inc. and Guelph, Ont.-based Linamar Corp. A report issued by Toronto-based Canaccord Genuity Corp. had a “buy” rating on Magna.

Here’s a closer look at Ford, Magna and Linamar:

> Ford Motor Co. UBS’s and J.P. Morgan’s April 28 reports had 12-month share price targets of US$16 for Ford — well up from the US$12.11 the 3.4 billion shares closed at on May 14.

Net income in Q1 2010 was US$2.1 billion on revenue of US$31.6 billion, vs a loss of US$1.4 billion on revenue of US$24.4 billion in Q1 2009.

The UBS report says Ford will benefit from market-share gains and improved operating leverage, but understands investor concerns about higher structural costs during the remainder of 2010 as well as lower production in its European plants in the second half of this year.

The J.P. Morgan report says there’s a risk European production will be down by even more than expected and that there will be a greater than anticipated shift in consumer demand away from pickups and sport utility vehicles.

> Magna International Inc. A May 7 UBS report had a “buy” rating on the 112 million shares, which closed at US$73.84 on May 14. The report also raised the 12-month target price to US$84 from US$73. (Canaccord Genuity’s report raised the target to US$102 from US$79.)

Says the UBS report: “Magna stands at the precipice of a strong rebound in earnings growth driven by enhanced operating leverage against a backdrop of improving auto production.”

Net earnings were US$223 million in Q1 vs a loss of US$200 million in Q1 2009. Sales were US$5.5 billion vs US$3.6 billion.

> Linamar Corp. A May 5 UBS report had a “buy” rating on the 64.7 million outstanding shares, which closed at $21.75 on May 14. The report also raised the 12-month target price to $24 from $21.

Net income was $21.6 million on sales of $510.7 million in Q1 2010 vs a loss of $12.6 million on sales $424.9 million in Q1 2009.

The UBS report says Linamar believes it can finance future growth through operating cash flow rather than debt. IE