Auto purchases increased 0.7% last month, the highest rate in the past half-year. The "cash for clunkers" program is credited with the spike, particularly given that other retailers continued to struggle.

Not including the auto sector, retail sales were up only 0.1% in July. So, the car manufacturers are getting their bump, but to call a recovery would still be premature. It's even gotten to the point where dealers are running out of inventory.

Earnings from GM (NYSE: GM) and Ford (NYSE: F) have taken both stocks up over the last two weeks. At Ford, cost-cutting helped earnings. Overseas sales helped lift results as well. At GM, overseas sales were the star of the earnings report. Much of its cost-cutting efforts are behind it.

But, that was then, and this is now. Aside from UAW negotiations that could reshape the entire relationship between labor and the Big Three by moving pension and health-care liabilities off of the auto companies' balance sheets, the real problem with Detroit is that very few people want to buy its products.

After an ugly June, the Motor City is preparing to release July numbers that could make strong men weep. The New York Times writes that today "G.M. and Ford are expected to report double-digit declines in July auto sales." Pick-up and SUV sales should be hit hard. They are the profit machines at the two car companies, but they take a lot of gas to run.

Detroit may not be able to cut costs fast enough to match dropping sales, especially if the UAW digs in its heels.

But, the real question is: where is the bottom? At some point the companies will find a core of buyers who will stick with them through thick and thin: the "buy American" crowd. The group that has always owned a Ford or a Chevy. If this core is too small, the future of a turnaround in Detroit is hopeless unless it can get attractive and smaller cars to market in record time.

Looking back on this year, business historians are very likely to point to it as the year that US car companies fell into a spiral that circled inexorably down or a turning point when product development and labor costs came together to save that reeling industry.

No one is smart enough to know which is the denouement of the story.

Douglas A. McIntyre is a partner at 24/7 Wall St.