Auto parts maker Federal-Mogul Corp (FDML.O) posted a sharp drop in quarterly profit on Thursday, but reported substantial progress from earlier in 2009 as it cut costs to address the economic downturn and production cuts by its automaker customers.

Federal-Mogul, controlled by billionaire investor Carl Icahn, said it hoped to remain profitable throughout the rest of the year as the industry starts to rebound from its worst sales downturn in nearly three decades.

Chief Executive Jose Maria Alapont said Federal-Mogul's liquidity of more than $1.2 billion gave it an opportunity for acquisitions, adding that the company would continue to look at potential deals.

During the second quarter, we've seen some signs of stabilization, Alapont told Reuters. But he expressed caution, saying the stabilization was occurring at very low levels.

The second half of the year will need to prove whether we're having a beginning of a recovery or we're still leveling at the bottom, Alapont said.

Auto suppliers have been shaken by the lowest level of U.S. auto sales in nearly three decades. The bankruptcies of General Motors and Chrysler added to the woes for the supply industry as the automakers cut production sharply or idled completely during their reorganizations.

Chrysler emerged from Chapter 11 bankruptcy proceedings on June 10 by completing a sale to a group led by Fiat, while GM also exited bankruptcy by completing a similar sale process earlier this month.

Federal-Mogul has reduced its global headcount by nearly 11,000 employees, or 22 percent, over the past 12 months as part of a global restructuring plan aimed at saving $160 million annually.

The company's second-quarter net income plummeted to $3 million, or 3 cents per share, from $89.6 million, or 89 cents per share, a year earlier. It posted a $101 million net loss in the first quarter.

Revenue fell 35 percent to $1.3 billion from a year earlier.

Federal-Mogul, which emerged from bankruptcy protection in late 2007, said it had more than $1.2 billion of liquidity at the end of the second quarter, including $700 million in cash and $500 million under an untapped revolving credit facility.

The company makes pistons, spark plugs, windshield wiper blades, brake pads and dozens of other products for automotive manufacturers and the replacement parts market.

Billionaire investor Carl Icahn has acquired a 75 percent stake in the company and is nonexecutive chairman.

(Reporting by Soyoung Kim; editing by Jeffrey Benkoe and Lisa Von Ahn)