<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.   20549

                                   FORM 10-Q

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 1997

                                       OR

             [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934
                  For the transition period from .......... to ..........

                          Commission File No. 1-12394
                                              -------  
                           DETROIT DIESEL CORPORATION
            ---------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                       DELAWARE                          38-2772023
                       --------                          ----------     
        (State or other jurisdiction of               (IRS Employer 
        incorporation or organization)                Identification No.)

             13400 OUTER DRIVE WEST,  DETROIT, MICHIGAN 48239-4001
          ------------------------------------------------------------
          (Address of principal executive offices, including zip code)

                                  313-592-5000
                                  ------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes  [X]   No  [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.


           COMMON STOCK $0.01 PAR VALUE        24,699,566 SHARES
           ----------------------------        -----------------
                    Class                   Outstanding at August 1, 1997



        This report contains 56 pages.  The exhibit index is on page 17.


<PAGE>   2



                               TABLE OF CONTENTS

                                                                     PAGE NO.
PART I - FINANCIAL INFORMATION

     ITEM 1.  FINANCIAL STATEMENTS.

             Consolidated Statements of Operations for the
             Three and Six Months Ended June 30, 1997 and 1996          3

             Consolidated Balance Sheets at June 30, 1997
             and December 31, 1996                                      4

             Consolidated Statements of Cash Flows for the
             Six Months Ended June 30, 1997 and 1996                    5

             Notes to Unaudited Consolidated Financial Statements       6

             Independent Accountants' Report                            9

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS.           10

PART II - OTHER INFORMATION

     ITEM 1.  LEGAL PROCEEDINGS.                                       14

     ITEM 5.  OTHER INFORMATION.                                       14

     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.                        15

SIGNATURE                                                              16

EXHIBIT  INDEX                                                         17






                                      2

<PAGE>   3






                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.

                           DETROIT DIESEL CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>

                                                THREE MONTHS ENDED              SIX MONTHS ENDED
                                                    JUNE 30,                        JUNE 30,
                                                1997         1996               1997         1996
                                                ----         ----               ----         -----
<S>                                           <C>         <C>               <C>          <C>
Net revenues                                   $ 557.4     $ 491.3           $ 1,077.1    $ 970.1
Cost of sales                                    431.4       378.6               828.9      745.2
                                               -------     -------           ---------    -------       
   Gross profit                                  126.0       112.7               248.2      224.9

Expenses:
   Selling and administrative                     86.3        69.4               169.6      141.1
   Research and development                       23.8        27.0                49.3       51.5
   Interest                                        3.4         2.6                 6.6        5.4
   Special charge (Note 7)                           -        38.3                   -       38.3
                                               -------     -------           ---------    -------       
      Total                                      113.5       137.3               225.5      236.3
                                                
Income (loss) before income taxes and 
 minority interests                               12.5       (24.6)               22.7      (11.4)
Provision (Credit) for income taxes                5.1        (8.6)                8.9       (4.0)
Minority interests                                   -          .2                   -         .5
                                               -------     -------           ---------    -------       
Net income (loss)                              $   7.4      ($16.2)          $    13.8      ($7.9)
                                               =======     =======           =========    =======

Primary net income (loss) per share (Note 5)   $   .30      ($0.66)          $     .56     ($0.32)
                                               =======     =======           =========    =======


</TABLE>

See accompanying Notes to Unaudited Consolidated Financial Statements


                                      3
<PAGE>   4

                           DETROIT DIESEL CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                                                JUNE 30,              DEC 31,
                                                                                 1997                   1996
                                                                                 ----                   ----
ASSETS                                                                        (Unaudited)
<S>                                                                             <C>                 <C>
CURRENT ASSETS:
Cash and cash equivalents                                                       $     9.5            $     3.0  
Receivables, net of allowances of $3.8 and $6.1, respectively                       316.5                293.1  
Inventories                                                                         285.1                292.1
Prepaid expenses, deferred charges and other current assets                          14.0                 19.8          
Deferred tax assets                                                                  52.7                 56.4
                                                                                ---------            ---------  
      TOTAL CURRENT ASSETS                                                          677.8                664.4
PROPERTY, PLANT AND EQUIPMENT:
Net of accumulated depreciation of $138.9 and $125.3, respectively                  289.8                281.5
DEFERRED TAX ASSETS                                                                  24.5                 26.0
INTANGIBLE ASSETS, NET                                                               90.5                103.9
OTHER ASSETS                                                                         35.3                 36.8                  
                                                                                ---------            ---------  
      TOTAL ASSETS                                                              $ 1,117.9            $ 1,112.6
                                                                                =========            =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable                                                                   $    24.3            $    16.6  
Accounts payable                                                                    310.5                279.9
Accrued expenses                                                                    175.9                179.8
Current portion of long-term debt and capital leases                                  7.9                  9.8
                                                                                ---------            ---------  
      TOTAL CURRENT LIABILITIES                                                     518.6                486.1  
LONG-TERM DEBT AND CAPITAL LEASES                                                    67.0                 92.6
OTHER LIABILITES                                                                    170.3                165.2
DEFERRED TAX LIABILITIES                                                             23.2                 35.4
DEFERRED INCOME                                                                       6.2                  6.5
MINORITY INTERESTS                                                                     .6                  5.6  
COMMITMENTS AND CONTINGENCIES (NOTE 6)      
STOCKHOLDERS EQUITY:
Preferred stock, par value $0.01 per share, no shares issued                            -                    -
Common stock, par value $0.01 per share, 24.7 million shares issued                    .2                   .2
Additional paid-in capital                                                          217.8                217.8
Retained earnings                                                                   122.7                108.9
Additional minimum pension liability                                                 (2.5)                (2.5)
Currency translation adjustment                                                      (6.1)                (3.0)
Deferred compensation on restricted stock                                             (.1)                 (.2)
                                                                                ---------            ---------  
      TOTAL STOCKHOLDERS' EQUITY                                                    332.0                321.2
                                                                                ---------            ---------  
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $ 1,117.9            $ 1,112.6
                                                                                =========            =========
                                                                                
</TABLE>
                                
See accompanying Notes to Unaudited Consolidated Financial Statements



                                      4
<PAGE>   5

                           DETROIT DIESEL CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>

                                                                                                SIX MONTHS ENDED
                                                                                                     JUNE 30,
                                                                                                1997          1996
                                                                                                ----          ----
<S>                                                                                          <C>           <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:                                                         $  13.8       $   (7.9)
 Net income (loss)
 Adjustments to reconcile net income (loss) to net cash from operating activities:        
     Depreciation and amortization                                                               18.5           16.3
     Changes in assets and liabilites which provided (used) cash:
        Accounts and notes receivable                                                           (29.2)         (18.2)
        Inventories                                                                               3.3          (17.3)
        Prepaid expenses, deferred charges and other current assets                               5.6           (2.5)
        Deferred taxes                                                                           (4.8)          (6.9)
        Accounts payable                                                                         39.4            7.6
        Accrued expenses and other liabilities                                                    5.3           (1.5)
        Other assets                                                                              6.1            1.0
                                                                                              -------       --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                              58.0          (29.4)
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of property, plant and equipment                                                   (33.8)         (32.7)
 Proceeds from sale of property, plant and equipment                                              (.3)           1.1
 Investments in and advances to affiliates                                                       (2.5)           (.2)
 Acquisition of subsidiaries                                                                     (1.8)             -
 Proceeds from sale of subsidiaries                                                               4.7              -
                                                                                              -------       --------
NET CASH USED IN INVESTING ACTIVITIES                                                           (33.7)         (31.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net proceeds from (payments on) notes payable                                                    7.9           (4.4)
 Net (payments on) proceeds from long-term debt                                                 (25.8)          65.4
                                                                                              -------       --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                             (17.9)          61.0            
EFFECT OF EXCHANGE RATE CHAGES ON CASH AND CASH EQUIVALENTS                                        .1            (.1)
                                                                                              -------       --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                              6.5            (.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                              3.0            5.1
                                                                                              -------       --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD                                            $   9.5       $    4.8    
                                                                                              =======       ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the period for:

  Interest                                                                                    $   6.5       $    5.5
                                                                                              =======       ========
  Income Taxes                                                                                $   1.5       $    6.2
                                                                                              =======       ========
 Noncash investing and financing activities:

  Issuance of debt to acquire subsidiary                                                      $   7.2
                                                                                              =======       
  Capital lease obligations incurred                                                                        $    2.3
                                                                                                            ========            
  Contribution of assets to joint venture                                                                   $     .5
                                                                                                            ========             
  Issuance of deferred stock                                                                                $     .4
                                                                                                            ========            
</TABLE>


See accompanying Notes to Unaudited Consolidated Financial Statements


                                      5
<PAGE>   6

DETROIT DIESEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - FINANCIAL STATEMENTS.
     The accompanying unaudited consolidated financial statements have been
prepared by management and, in the opinion of management, contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position of Detroit Diesel Corporation and its
majority-owned subsidiaries ("Detroit Diesel", "DDC" or the "Company") as of
June 30, 1997 and the results of its operations for the three and six month
periods ended June 30, 1997 and 1996 and its cash flows for the six month
periods ended June 30, 1997 and 1996.

     The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Company's 1996 Annual Report to Stockholders.  The results of operations for
the three and six month periods ended June 30, 1997 will not necessarily be
indicative of the operating results for the full year.

NOTE 2 - CASH AND CASH EQUIVALENTS.
     Cash equivalents represent short-term deposits with financial institutions
that have maturities of generally less than 90 days.  At June 30, 1997, cash
and cash equivalents include approximately $4.1 million which is restricted for
specific capital expenditures in Brazil.

NOTE 3 - INVENTORIES.
     At June 30, 1997 and December 31, 1996, inventories (principally using the
first-in, first-out method) consist of the following:

<TABLE>
<CAPTION>
                                                              JUNE 30,        DEC. 31,
          ($ in millions)                                      1997             1996
                                                               ----             ----
                                                             (Unaudited)
         <S>                                                 <C>              <C>               
          Productive                                          $  155.7         $ 161.1
          Service parts                                           91.3            89.8
          Remanufactured parts                                    32.8            34.7
          Non-productive                                           5.3             6.5
                                                              --------         -------
                                                              $  285.1         $ 292.1
                                                              ========         =======

          The components of productive inventory are:

          Material                                                 50%             48%
          Work in process                                          23%             24%
          Finished product                                         27%             28%

</TABLE>

NOTE 4 - INTANGIBLE ASSETS. Intangible assets include goodwill of $68.5 million
and $80.0 million at June 30, 1997 and December 31, 1996, respectively.
Accumulated amortization of intangible assets as of June 30, 1997 and December
31, 1996 was $16.2 million and $13.9 million, respectively.



                                      6
<PAGE>   7

DETROIT DIESEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 - NET INCOME (LOSS) PER SHARE.
     Primary net income per share for the three and six month periods ended
June 30, 1997 was computed by dividing net income by the weighted average
number of common shares outstanding (24,699,566) plus the weighted average
dilutive effect of the Company's incentive stock options (40,687 and 13,964)
determined using the treasury stock method.

     Primary net loss per share for the three and six month periods ended June
30, 1996 was computed by dividing net income by the weighted average number of
common shares outstanding (24,697,316) plus the weighted average dilutive
effect of the Company's incentive stock options (301 and 317) determined using
the treasury stock method.

     In April 1997, Detroit Diesel Corporation issued 267,500 incentive stock
options.  These options carry an exercise price of $17 per share and vest
equally over a four year period.  In accordance with Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based Compensation," the
Company has elected to continue the application of Accounting Principles Board
Opinion No. 25 which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded.  If the company measured compensation cost
based on the fair value of the equity instrument awarded, earnings per share
would have been $0.29 and $0.55 for the three months and six months ended June
30, 1997.

NOTE 6 - COMMITMENTS AND CONTINGENCIES.
     The Company is contingently liable for letters of credit and guarantees to
banks aggregating approximately $38.8 million as of June 30, 1997.

NOTE 7 - SPECIAL CHARGE.
     During the three month period ended June 30, 1996, the Company recorded a
special charge of $38.3 million for product coverage expenses and to reduce the
value of an investment in Mexico to its estimated fair value.

NOTE 8 - SUBSEQUENT EVENT.
     On July 8, 1997, Detroit Diesel Corporation and Outboard Marine
Corporation signed a definitive agreement and plan of merger under which a
subsidiary of Detroit Diesel Corporation will acquire Outboard Marine
Corporation ("OMC").  On July 15, 1997, OMC Acquisition Corp., a wholly-owned
subsidiary of the Company, initiated a cash tender offer to purchase 13,842,619
shares of common stock of OMC at a price of $16.00 per share.  The tender offer
is scheduled to close on August 11, 1997 unless extended in accordance with the
terms of the offer.  In the event the tender offer is consummated, the second
part of the transaction will be the merger of the Company's subsidiary into OMC
pursuant to which the outstanding shares of common stock of OMC will be
exchanged for an aggregate of 4,000,000 shares of common stock of the Company
plus a variable amount of cash based on the closing price of the Company's
common stock.  In the merger, each share of then issued and outstanding OMC
common stock (the "Exchanged Common Shares"), shall be converted into the right
to receive (1) a fractional 


                                      7
<PAGE>   8

share of Detroit Diesel common stock equal to 4,000,000 divided by the number of
Exchanged Common Shares (the "Exchange Ratio") plus (2) a cash payment equal to
(i) $16.00 minus (ii) the product of the Exchange Ratio times $25.00, plus (3)
in the event the average closing price on the New York Stock Exchange for
Detroit Diesel common stock for the 20 consecutive trading days ending on the
fifth trading day prior to the closing date of the merger (the "DDC Closing Date
Price") is less than $25.00, then an additional cash payment equal to the
product of the Exchange Ratio multiplied by the lesser of (i) $25.00 minus the
DDC Closing Date Price or (ii) $6.00.
        
     Assuming the issuance of no additional shares of common stock by OMC prior
to the merger, at the effective time of the merger, the holders of the
6,362,896 Exchanged Common Shares of OMC common stock would receive a
combination of 4,000,000 shares of Detroit Diesel common stock and cash.
Assuming a $25.00 DDC Closing Date Price, OMC shareholders in the merger would
thus receive $16.00 of value per OMC share, which value is comprised of 0.6286
shares of Detroit Diesel common stock for each share of OMC common stock and
$0.28 in cash.

     The above conversion formula provides that should the DDC Closing Date
Price be less than $25.00, additional cash consideration will be paid to the
holders of the Exchanged Common Shares to maintain the total $16.00 per share
value subject to a minimum value of $19.00 per share of DDC common stock.  If
the DDC Closing Date Price exceeds $25.00 per share of DDC common stock, the
Exchange Ratio would remain the same.

     Additional details are available in the tender offer documents filed by
the Company with the Securities and Exchange Commission in connection with this
transaction.

     On August 11, 1997, OMC exercised its right under the terms of the merger
agreement between DDC and OMC to request DDC to extend its tender offer until
August 25, 1997.  OMC also announced on that date that it was reviewing an
alternative tender offer proposal by Greenmarine Acquisition Corp. commenced on
August 8, 1997.








                                      8
<PAGE>   9

INDEPENDENT ACCOUNTANTS' REPORT

Board of Directors and Stockholders
Detroit Diesel Corporation

We have reviewed the accompanying condensed consolidated balance sheet of
Detroit Diesel Corporation and subsidiaries (the "Company") as of June 30,
1997, and the related condensed consolidated statements of operations and cash
flows for the three-month and six-month periods ended June 30, 1997 and 1996,
included in the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997. These consolidated financial statements are the responsibility of
Company's management.  We were furnished with the report of other accountants on
their review of the interim financial information of VM Motori S.p.A. (a
consolidated subsidiary) whose total revenues constituted 14% and 13% of
consolidated total revenues for the respective three-month and six-month periods
ended June 30, 1996,

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants.  A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters.  It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is an expression of an opinion regarding the consolidated financial
statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review and the report of other accountants, we are not aware of
any material modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally accepted
accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended (not presented herein); and in our
report dated February 3, 1997, we expressed an unqualified opinion on those
consolidated financial statements.  In our opinion, the information set forth in
the condensed consolidated balance sheet at December 31, 1996 included in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which such information has been derived.


/s/ Deloitte & Touche LLP
Detroit, Michigan
July 21, 1997



                                      9
<PAGE>   10

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

     The percentage relationships between net revenues and other elements of
the Company's Consolidated Statements of Operations for the comparative
reporting periods were:


<TABLE>
<Caption

                                                        THREE MONTHS ENDED              SIX MONTHS ENDED
                                                            JUNE 30,                       JUNE 30,
                                                            --------                       --------
                                                        1997         1996               1997        1996
                                                        ----         ----               ----        ----
<S>                                                   <C>          <C>                <C>         <C>
Net Revenues                                           100.0%       100.0%             100.0%      100.0%       
Cost of sales                                           77.4%        77.1%              77.0%       76.8%       
                                                      ------       ------             ------      ------
   Gross profit                                         22.6%        22.9%              23.0%       23.2%
Expenses:
   Selling and administrative                           15.5%        14.1%              15.7%       14.5%
   Research and development                              4.3%         5.5%               4.6%        5.3%
   Interest                                               .6%          .5%                .6%         .6%
   Special charge                                          -          7.8%                 -         4.0%
                                                      ------       ------             ------      ------
      Total                                             20.4%        27.9%              20.9%       24.4%
Income (loss) before income taxes                        2.2%        (5.0%)              2.1%       (1.2%)
Provision (credit) for income taxes                       .9%        (1.7%)               .8%        (.4%)
                                                      ------       ------             ------      ------
Net income (loss)                                        1.3%        (3.3%)              1.3%        (.8%)
                                                      ======       ======             ======      ======

</TABLE>


     The Company's net revenues for each of its markets were:


<TABLE>
<CAPTION>

                                                       THREE MONTHS ENDED               SIX MONTHS ENDED
                                                             JUNE 30,                       JUNE 30,
(In millions)                                          1997          1996               1997         1996
                                                       ----          ----               ----         ----
<S>                                                  <C>           <C>               <C>           <C>
On-Highway Truck                                      $ 243         $ 190             $  462        $ 384       
Construction & Industrial                                86            92                163          179
Automotive                                               70            55                141          107
Coach & Bus                                              63            53                120          104
Power Generation                                         37            33                 73           64
Marine                                                   36            44                 71           82
Military                                                 22            24                 47           50
                                                      -----         -----             ------        -----       
   Total                                              $ 557         $ 491             $1,077        $ 970               
                                                      =====         =====             ======        =====

</TABLE>



                                      10
<PAGE>   11



THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996

     NET REVENUES. Net revenues for the three months ended June 30, 1997 were
$557.4 million, an increase of $66.1 million, or 13% from $491.3 million for
the comparable period of 1996.  Net revenues for the six months ended June 30,
1997 were $1,077.1 million, an increase of $107 million, or 11%, from $970.1
million for the comparable period of 1996.
     The increase in net revenues reflects an increase in unit sales of 33% and
28% for the three months and six months ended June 30, 1997, respectively, over
the comparable periods of 1996.  The increase in unit sales reflects the
improvement in the North American on-highway heavy duty truck market in which
Company revenues increased 28% for the three months and 20% for the six months
ended June 30, 1997 versus the same periods for 1996, along with growth in the
Company's heavy duty truck market share.  The Company's growth in this market
is evidenced by the May 1997 AAMA data which shows Detroit Diesel achieving a
YTD 30.3% penetration versus 26.3% at the end of 1996.
     The increase in net revenues also reflects the strength of the Company's
automotive market in which sales have increased 27% for the three months and
32% for the six months ended June 30, 1997, as strong demand with existing OEM
customers paced the increases.  Coach and bus market revenues also increased
19% and 15% for the three and six months ended June 30, 1997 compared to the
same periods in 1996 as shipments of two-cycle products and Series 60
on-highway coach units were strong.
     These increases were somewhat offset by decreases in the construction &
industrial, marine and military markets.  Decreases in the construction &
industrial market and the marine market are related to a change in product mix
while the decreases in the military market are due to changes in U.S. defense 
spending awards, partially offset by remanufacturing and international 
activities.

     GROSS PROFIT.  Gross profit for the three months ended June 30, 1997 was
$126.0 million, or 22.6% of net revenues, versus $112.7 million, or 22.9% of
net revenues for the three months ended June 30, 1996.  Gross profit for the
six months ended June 30, 1997 was $248.2 million, or 23.0% of net revenues,
versus $224.9 million, or 23.2% of net revenues for the comparable period of
1996.  Gross profit as a percent of net revenues has decreased during 1997
reflecting a combination of new product introductions during the period and
sales mix, combined with the competitive pricing environment in which the
Company operates.

     SELLING AND ADMINISTRATIVE EXPENSES.  Selling and administrative expenses
for the three months ended June 30, 1997 were $86.3 million, or 15.5% of net
revenues, compared to $69.4 million, or 14.1% of net revenues for the
corresponding period of 1996.  For the six months ended June 30, 1997, selling
and administrative expenses were $169.6 million, or 15.7% of net revenues,
compared to $141.1 million, or 14.5% of net revenues for the comparable period
of 1996.  The increase in selling and administrative expenses is due to higher
accruals and other selling expenses in support of increased sales volume,
combined with expenses associated with new product releases.





                                      11
<PAGE>   12



     RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses of
$23.8 million for the three months and $49.3 million for the six months ended
June 30, 1997 were $3.2 million and $2.2 million lower than the comparable
periods of 1996.  The decreases versus the prior periods are due to the timing
of research and development activities.  The Company expects research and
development to be approximately 5% of net revenues in 1997.

     SPECIAL CHARGE.  During the second quarter of 1996, the Company recorded a
special charge of $36.3 million for product coverage expenses associated with
variability in component machining affecting a limited number of engines used
in specific duty cycles.  Additionally, the Company reduced the carrying value
of an investment in Mexico by $ 2 million to its estimated fair value.

     INTEREST EXPENSE.   Interest expense of $3.4 million for the three months
and $6.6 million for the six months ended June 30, 1997 reflect higher debt
levels during 1997 associated with increased business volumes during the first
six months of 1997 versus the first six months of 1996.

     PROVISION FOR INCOME TAXES.  The provision for income taxes is reported
during the interim reporting periods on the basis of the Company's estimated
annual effective tax rate for the taxable jurisdictions in which the Company
operates.  The Company's effective annual tax rate for 1997 is estimated to be
39%.

     NET INCOME/LOSS.  Net income for the three months ended June 30, 1997 was
$7.4 million, versus a net loss of $16.2 million for the comparable period of
1996.   Net income for the six months ended June 30, 1997 was $13.8 million
versus a net loss of  $7.9 million for the comparable period of 1996.
Excluding the special charge, net income would have been $8.7 million and $17.0
million for the three and six month periods ended June 30, 1996, respectively.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company's primary sources of liquidity have been cash
provided by operations and bank borrowings under various revolving lines of
credit and bank notes, including the Company's $300 million revolving line of
credit, of which approximately $259.3 million was available as of June 30,
1997.  The Company's subsidiary, VM Motori S.p.A. ("VM"), has an additional $54
million in unsecured, short term lines of credit with several banks in Italy,
of which approximately $44 million was available at June 30, 1997.

     In connection with the Company's proposed acquisition of OMC, the Company
is in the process of replacing its current credit facility.  The new facility
will be used to finance the acquisition and to provide the Company with cash to
meet  its on-going cash requirements.  The Company expects to obtain $800
million in credit facilities, comprised of a $350 million six-year revolver
and a $450 million six-year term loan.

     Cash provided by operations for the six months ended June 30, 1997 was
$58.0 million, reflecting  the Company's net income for the period, adjusted
for non-cash items, and changes in working capital.



                                      12
<PAGE>   13


     Capital expenditures were $33.8 million and $32.7 million for the first
six months of 1997 and 1996, respectively, and were used to upgrade machinery
and tooling, enhance facilities, introduce the Series 2000 and Series 4000
engines and develop a production facility in Brazil.

     The Company is subject to risks of changes in foreign currency exchange
rates due to its operations located outside of the United States, particularly
in Italy, Mexico and Brazil where the Company has subsidiary activities.
During the first half of 1997, the decrease in value of the Italian Lira
compared to the U.S. dollar resulted in unfavorable translation adjustments
relating to the Company's investment in VM.

     The Company expects that it will be able to satisfy on-going cash
requirements (including capital expenditures for environmental compliance and
other projects), for the next 12 months and thereafter, with cash flow from
operations, supplemented, if necessary, by borrowings under its revolving lines
of credit.

PROSPECTIVE INFORMATION

The Company expects the North American heavy-duty truck market to remain a
significant part of its business and to be at or near 1996 levels.  The overall
strength of this market and the requirements to compete in this market will
impact the Company's performance during the remainder of 1997.  Management
expects that all of its markets, particularly the North American heavy-duty
truck market, will experience continued price competition.

NEW ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share."  This statement is
effective for financial statements issued after December 15, 1997.  The
statement requires companies to present earnings per share on the face of the
income statement in two categories called "Basic" and "Diluted" and requires
restatement of all periods presented.  The Company will adopt Statement No. 128
during the fourth quarter of 1997 and does not anticipate the adoption will 
have a material impact.

     The Financial Accounting Standards Board has also issued SFAS Nos. 130 and
131.  Statement No. 130, "Reporting Comprehensive Income", and No. 131,
"Disclosures about Segments of an Enterprise and Related Information", are
effective for fiscal years beginning after December 15, 1997.  Statement No.
130 requires companies to report a separate statement of comprehensive income
in addition to the statement of operations.  The provisions of this statement
will impact the Company due to currency translation adjustments and other
components of the Company's stockholders' equity section, which change from
period to period, to be included in the separate statement of Comprehensive
Income.

     Statement No. 131 requires companies to report certain information about
their operating segments, products and services, geographic areas in which they
operate and major customers.  The Company will adopt the provisions of
Statement Nos. 130 and 131 in the first quarter of 1998.



                                      13
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CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995

     This document may include projections, forecasts and other forward-looking
statements about the Company, the industry in which it competes and the markets
it serves.  The achievement of such projections, forecasts and other
forward-looking statements is subject to certain risks and uncertainties, fully
detailed in the "Cautionary Statement for purposes of 'Safe Harbor' under the
Private Securities Act of 1995" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, which is on file with the Securities and
Exchange Commission.



                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.
     The Company is presently involved in certain claims and litigation arising
in the ordinary course of business, including claims relating to the use of and
performance of the Company's products.  The Company does not believe that the
resolution of any of these matters will have a material adverse effect on the
Company's results of operations or financial position.

     Cummins Engine Company, Inc., a competitor of the Company, filed a lawsuit
on June 6, 1997 in the U. S. District Court, Southern District of Indiana
(Indianapolis Division) claiming that the Company infringes on a Cummins patent
which discloses a method and device to generate information and software to
calibrate electronic engine control modules, which in turn, govern the
operations of electronically controlled engines.  The Company has filed a
motion to obtain a more detailed statement on the basis of this infringement
claim.  The Company believes it does not infringe the patent, that it has
meritorious defenses to the claim, and that the proceedings will not have a
material adverse impact on the financial position or results of operations of
the Company.

ITEM 5.  OTHER INFORMATION.

     On July 8, 1997, Detroit Diesel Corporation and Outboard Marine
Corporation signed a definitive agreement and plan of merger under which a
subsidiary of Detroit Diesel Corporation will acquire Outboard Marine
Corporation ("OMC").  On July 15, 1997, OMC Acquisition Corp., a wholly-owned
subsidiary of the Company, initiated a cash tender offer to purchase 13,842,619
shares of common stock of OMC at a price of $16.00 per share.  The tender offer
is scheduled to close on August 11, 1997 unless extended in accordance with the
terms of the offer.  In the event the tender offer is consummated, the second
part of the transaction will be the merger of the Company's subsidiary into OMC
pursuant to which the outstanding shares of common stock of OMC will be
exchanged for an aggregate of 4,000,000 shares of common stock of the Company
plus a variable amount of cash based on the closing price of the Company's
common stock.  In the merger, each share of then issued and outstanding OMC
common stock (the "Exchanged Common Shares"), shall be converted into the right
to receive (1) a fractional share of Detroit Diesel common stock equal to
4,000,000 divided by the number of Exchanged 


                                      14
<PAGE>   15

Common Shares (the "Exchange Ratio") plus (2) a cash payment equal to (i) $16.00
minus (ii) the product of the Exchange Ratio times $25.00, plus (3) in the event
the average closing price on the New York Stock Exchange for Detroit Diesel
common stock for the 20 consecutive trading days ending on the fifth trading day
prior to the closing date of the merger (the "DDC Closing Date Price") is less
than $25.00, then an additional cash payment equal to the product of the
Exchange Ratio multiplied by the lesser of (i) $25.00 minus the DDC Closing Date
Price or (ii) $6.00.
        
     Assuming the issuance of no additional shares of common stock by OMC prior
to the merger, at the effective time of the merger, the holders of the
6,362,896 Exchanged Common Shares of OMC common stock would receive a
combination of 4,000,000 shares of Detroit Diesel common stock and cash.
Assuming a $25.00 DDC Closing Date Price, OMC shareholders in the merger would
thus receive $16.00 of value per OMC share, which value is comprised of 0.6286
shares of Detroit Diesel common stock for each share of OMC common stock and
$0.28 in cash.

     The above conversion formula provides that should the DDC Closing Date
Price be less than $25.00, additional cash consideration will be paid to the
holders of the Exchanged Common Shares to maintain the total $16.00 per share
value subject to a minimum value of $19.00 per share of DDC common stock.  If
the DDC Closing Date Price exceeds $25.00 per share of DDC common stock, the
Exchange Ratio would remain the same.

     Additional details are available in the tender offer documents filed by
the Company with the Securities and Exchange Commission in connection with this
transaction.

     On August 11, 1997, OMC exercised its right under the terms of the merger
agreement between DDC and OMC to request DDC to extend its tender offer until
August 25, 1997.  OMC also announced on that date that it was reviewing an
alternative tender offer proposal by Greenmarine Acquisition Corp. commenced on
August 8, 1997.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits:


EXHIBIT                                                          
NUMBER                      DESCRIPTION                          
-------                     -----------                          

   2     Plan of Acquisition, Reorganization, Arrangement,
         Liquidation or Succession

  11     Statement Re: Computation of Per Share Earnings

  15     Letter Re: Unaudited Interim Financial Information

  27     Financial Data Schedule


(b)  The Company was not required to file a Form 8-K during the three months
     ended June 30, 1997.




                                      15
<PAGE>   16


                                   SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            DETROIT DIESEL CORPORATION

Date:  August 14, 1997                       By: /s/ J. Randall Lawrence
                                                -----------------------
                                                J. Randall Lawrence
                                            Its:  Senior Vice President-Finance
                                                  and Chief Financial Officer
                                                  (Principal Financial Officer)










                                      16

<PAGE>   17



                                 EXHIBIT INDEX

     The following constitutes the exhibits to the Quarterly Report on Form
10-Q of the Company for the three and six months ended June 30, 1997:




EXHIBIT                                                          PAGE
NUMBER                      DESCRIPTION                         NUMBER
-------                     -----------                         ------

   2     Plan of Acquisition, Reorganization, Arrangement,
         Liquidation or Succession                                18    

  11     Statement Re: Computation of Per Share Earnings          54

  15     Letter Re: Unaudited Interim Financial Information       55

  27     Financial Data Schedule                                  56















                                      17