) -- Investors aren't crediting


(GM) - Get Report

for what it has done this year.

In the first quarter, the automaker reported its fifth consecutive quarterly profit. In the first seven months of the year, it reported a 15.3% sales increase. It now produces the country's leading small car, the Cruze, which symbolizes the recovery of U.S. automakers -- a group trying to prove that they are something more than pickup-truck companies that also make cars.

In July, when the auto industry produced an anemic 1% sales gain,

GM gained 7.6%.

But in response to this seeming success story produced by a company reconstructed by the government in what was perhaps the greatest triumph of the Obama administration, investors have turned up their noses.

Shares of GM, which will report second-quarter earnings results Thursday before the market open, are down 26% this year, while


(F) - Get Report

shares are down 31%. The

S&P 500

is flat. Shortly before midday Wednesday, GM shares were trading at $26.74, down 31 cents.

Of course, July was a puzzling month in the auto industry, which reported monthly sales on Tuesday. Twenty-four hours later, no consensus exists on whether July was a good or bad month for auto sales,

a sign of a strong second half, or a sign of an impending recession.

Of course, a 1% sales gain is weak. The industry says inventory shortages and consumer skepticism weighed on sales. The U.S. automakers exceeded the industry, with gains of 8.9% at Ford and 20.1% at Chrysler; GM saw gains of 7.6%.

Maybe the gains came because Japanese competitors remained crippled by production shortages, or maybe they came because consumers like the new U.S. cars. Clarity is on the way, because the Japanese competitors are in a rapid recovery.

On this topic, as far as the Cruze is concerned, the Japanese should bring it on, said Don Johnson, GM vice president of U.S. sales, during the GM sales call. When Japanese manufacturers restore inventory, he said, "they will bring more consumers back into the market overall. When they come back into the market and start to consider the Cruze along with the Japanese competitors, that's going to benefit us."

But right now, investors aren't listening to the analysts, many of whom recommend GM shares. Efraim Levy of S&P has a strong buy and a $42 price target. He estimates second-quarter per-share earnings of $1.11. Analysts surveyed by Thomson Reuters estimate $1.20. For the full year, Levy estimates $4.24. Consensus is $4.01, up from $3.11 a year earlier.

"Post-bankruptcy profits should benefit from the sharp reduction in debt obligations, a leaner cost structure and a focus on fewer brands in North America" -- not to mention GM's market leadership in China, Levy wrote. Also, the company's "profit margins should benefit from the improved volume and expected reduced incentives needed due to competitors' production stoppages, partially offset by a weaker mix and higher raw material costs," he said.

Last month, Ford made $2.4 billion but missed estimates by a penny because of

rising costs for product development and commodities and a decline in credit division profits.

Wednesday morning, UBS analyst Colin Langan reiterated buys on GM and Ford. He said that July's seasonally adjusted annual sales rate of 12.2 million is better than the 11.4 million rate recorded in both July 2010 and June 2011. Langan noted that both Ford and GM "commented on a strong final week of July, despite overhang from the ongoing political uncertainty."

To the extent July was disappointing, Langan said it is because inventories remain low. Overall for Ford and GM, "fundamentals remain strong alongside leverage improvements," he wrote.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here:

Ted Reed