General Motor’s bid to turn around its massive ship towards profitability is starting to show some results. However the company is taking very heavy losses on the way.

The Detroit-based car manufacturer, the world’s largest ahead of Toyota, reported on Wednesday that it had lost $3.2 billion in the last three months. Included in that figure was an adjusted income of $1.2 billion with a positive cash flow of $700 million.

It's rewarding to see our automotive business return to profitability on an operating basis and a clear sign that we're on the right track, but there is more work to be done,” GM CEO Rick Wagoner said in a released statement.

In 2005, the company had reported a mammoth $10 billion loss for the year with the principal hemorrhaging coming from the North American division of the company.

During the latest quarter, GM shed heavy expenses, as 34,000 hourly union employees agreed to let the company buy out their contracts for an average of $108,000 each. The final bill was $3.7 billion.

Income for the quarter was $1.2 billion, the result of higher sales. Total revenue was a record $54.4 billion. In comparison, last year’s second quarter saw an income of $231 million.

GM CEO Rick Wagoner said the changes were going well with billions of dollars worth of inefficiencies in the process of being rooted out.

Our turnaround has not just gained traction, it's accelerating into high gear, Wagoner said in the report. While significant work still remains, our ability to identify and initiate $9 billion in cost cuts over the course of the past year is unprecedented in this industry.”

“Conventional wisdom is that you can't turn a ship as big as GM around quickly,” he added. “We aim to prove that conventional wisdom wrong.

The company’s $3.2 billion loss translated to earnings of minus $5.62 per share compared to a $987 million, or $1.75 per share loss a for the second quarter year ago.

The result this quarter has surpassed Wall Street expectations. Analysts polled by Thompson Financial had forecasted earnings of 55 cents per share. GM handily surpassed that goal, earning $2.03.

Overall, GM North America posted a net loss of $85 million, excluding special items. It was a $1.1 billion improvement over the previous year, which the company mostly attributed cost cutting measures including warranty improvements and the reduction of pensions expenses due largely to the departing union employees.

In Europe, the company earned $124 million, up from $94 million the previous year. Wagoner cited its Saab sales and the growth of Chevrolet. In anticipation of the coming quarter, GM said the Corsa, a new model from its Opel brand also looked promising for the fall.

The company Asian earnings were up to $167 million, down slightly from $183 million a year ago. This was due to equity income from Suzuki, after the company reduced its stake in the Japanese car maker. Meanwhile its market share in the region rose to 6.7 percent from 6.2 percent on strong sales in China.

Meanwhile, the company’s finance arm, which is expected to be sold by the end of the year, recorded stronger profits. General Motors Acceptance Corporation (GMAC) reported and income of $898 million, up 82 million from the same time last year.

The company also reported that its cash flow was up to $700 million in the latest quarter, a $2 billion improvement from a year ago.

GM is also currently in the process of exploring whether