Ford (NYSE:F) will present a brilliant plan to Congress. It will build smaller cars to take advantage of the hunger for fuel-efficient vehicles.

According to The Wall Street Journal, "Ford Motor Co. plans to tell Congress it is retooling itself to build small fuel-efficient cars and break from the past strategy of focusing mainly on large pick up trucks and sport-utility vehicles."

The program is not likely to get a warn reception for a number of reasons, the most important of which is that it is too late. Consider that changing over many of Ford's plants to produce small cars will take billions of dollars. Product development and engineering of the new vehicles could take a year or two. In the meantime, Ford will continue to lose sales.

The most important consideration, which Congress should raise right at the start of Ford's testimony, is how it plans to best companies such as Toyota (NYSE:TM) which already build outstanding small cars, have a huge domestic market share, and will be making better and better vehicles while Ford tries to get its act together.

Next question.

Douglas A. McIntyre is an editor at 247wallst.com.

As GM goes, so goes the nation. It may seem like that is all too true right now, but it's not.

General Motors (NYSE: GM) has been a slow-motion train wreck for a generation.

Former CEO Roger Smith blew hundreds of billions in automation that forgot about workers and did not work. The company received import protection and a waiver of regulations from Uncle Sam to generate huge profits in SUVs, and it reinvested the money in excessive contractual obligations to already coddled workers currently earning in excess of $70 an hour.

And Ford (NYSE: F) and Chrysler were not too far behind.

Congress is now debating some form of bailout in addition to the $25 billion for re-tooling. The structure and future of this bailout is uncertain and, while I'm in the minority, I see nothing happening pre-Obama except a possible GM bankruptcy filing.

Many middle-of-the-road Americans, including many day-to-day Democrats and independents, want to see GM go through a prepackaged bankruptcy.

And why is that?

Detroit is lobbying very hard for government assistance. Claiming severe hardship, the Big Three automakers -- Ford (NYSE: F), General Motors (NYSE: GM) and Chrysler -- are requesting loans that will prevent a complete collapse of the industry.

The past few days have been full of debate on the matter. With so many issues and questions regarding the merits of a bailout, answers will be difficult if not impossible to come by.

"Throw something up against the wall and hope it sticks" seems to be the modus operandi of the current administration with respect to the financial sector bailout. Now, Detroit is essentially asking for the same thing.

Critics are rightfully upset. There is no guarantee that loans to Detroit will ever be paid back. What results will accrue for taxpayer effort? Is this simply a black hole? Which industry will be asking for help next?

These are all legitimate questions.

The case for the bailout is simple: No money from Washington results in bankruptcy with a chance of complete failure. With that failure comes the loss of three million jobs up and down the auto food chain.

And there is the rub. This is more than just the Big Three automakers -- they and their suppliers are all at risk of complete and total collapse.

One such supplier is Lear Corp. (NYSE: LEA).

"Many big businesses aren't interested in getting the economy back on track by creating jobs. They've shown during the past 30 years that they're more interested in rewarding shareholders by cutting jobs."

The above quote comes from James P. Hoffa. These words, and other of Hoffa's rhetorical quips, appeared Friday, November 14, 2008, in The Detroit News. In his blog post there, Hoffa raises the banner of change, though perhaps not the typical organized labor banner that we're used to seeing. For the most part, Hoffa's words show me just how out of touch with the rank and file he really is. They also show how tightly tied to liberal fiscal politics he is.

On the one hand, James P. Hoffa claims that big businesses reward shareholders by cutting jobs. However, he neglects to acknowledge that in today's economic climate, cutting jobs is sometimes an essential ingredient in a business's very survival. He also seems to overlook the fact that those shareholders he's talking about are the exact same people he is talking to. I'd think that the president of the Teamsters would understand where pension funds and retirement portfolios tend to keep their money invested. The fiscal health of American retirement strategy is directly reflected in the fiscal health of Wall Street. You can tell J.P. Hoffa, that I said so.

Now, Hoffa is calling for the government to step in to save the auto makers. The implication here is that a government bailout will help to save auto industry jobs. What I believe he's really saying is that he'd like the reins of our auto industry handed over to the government. How convenient that would be for Hoffa and his organization. It would be especially convenient, when given how cozy Hoffa has become with the incoming administration.

Ford Motor Corp. (NYSE: F) reported a modest loss as it burned through a huge amount of cash in the most recent quarter. At this rate, Ford's dwindling cash pile will go up in smoke by mid-2009. It appears that the most likely options for Ford are to file for bankruptcy or to seek a government bailout. It would be nice if a private equity firm would step in and help take Ford private -- but that would require bank borrowing which seems to have dried up.

How much did Ford lose? $129 million (a relatively small loss) -- but this figure does not reveal the real problem with Ford. It is burning through cash fast, vaporizing $7.7 billion in the third quarter. That $129 million loss comes thanks to an accounting trick -- it lost $2.7 billion from continuing operations which was partly offset by a $2 billion gain from Ford shifting retiree health care liabilities to a UAW-run trust. More bad news: its sales plunged 22% due to lower volume and the sale of Jaguar and Land Rover. And Ford's loss was worst than expected: $1.31 per share excluding special items -- 27 cents more than analysts' estimates.

At this point it is not clear that GM (NYSE: GM) can get the money to merge with Chrysler. The plan would be to cut 50,000 people. That is a lot of severance. Closing plants and combining product lines cannot be done for free.

Chrysler has figured all of this out and has begun to focus on a partnership with Renault and Nissan, both of which are run by former auto whiz kid Carlos Ghosn. He has been trying to buy into the US market for several years without success. Now, he may have his chance.

If Ghosn can set up a deal where he takes a modest equity stake in Chrysler he may expand his reach into American for a small investment. According to The Wall Street Journal, "Chrysler would have a better chance of keeping much of its operations intact in an alliance with Nissan and Renault than in a merger with GM."

The deal would not really make any sense and may simply be a way to push GM into a merger. While putting Chrysler into a marketing and product development pact with both a Japanese and European car manufacturer, the savings would be modest. Since Chrysler's problems are huge cash losses and falling sales in North American it is hard to see how anything short of an outright merger with large cost cuts does the company any good.

But, there is sense of panic in Detroit which leads to grasping of straws. Panic clouds the mind. Chrysler could do a bad deal because it sees the options as better than no deal at all.

Douglas A. McIntyre is an editor at 247wallst.com.

This is part of a weekly series about the car business. The auto industry plays an important role in the global economy, and record-high oil prices and a global slowdown have contributed to a crisis in the sector. This column will highlight some of the interesting stories that emerge as that crisis plays out.

And I thought things looked bad last week (Car Biz: Dark days in Detroit and beyond). The skies do indeed look dark in Detroit and the auto industry as a whole. But now instead of weak sales and slow growth, we are looking at plummeting sales and the very real possibility of bankruptcy and further consolidation throughout the industry.

Yesterday, as Zac Bissonnette noted, General Motors (NYSE: GM) dropped like a stone to a 58-year low. This earlier low point came before the Korean War, when gas cost less than 30 cents a gallon. Looking back, of course, we can see that GM had some great years ahead of it. If only the future looked so bright now.

Today, an S&P analyst quoted on Bloomberg said that the Big Three could face bankruptcy as macroeconomic factors "overwhelm them." This follows yesterday's comment from S&P that debt from GM and Ford Motor Company (NYSE: F) may have to be downgraded again, even deeper into junk status.

GM has replied to S&P's comments, saying that while it does indeed face "unprecedented challenges," it does not consider bankruptcy an option at this time. But then again, what else are they going to say?

Alan Mulally, the CEO of Ford Motor Company (NYSE: F), voiced an unequivocally gloomy opinion about the future of the auto industry at the Paris Auto Show. After reporting a 34% plunge in auto sales for the month of August, Mulally warned reporters that "2009 is not going to be better than 2010. We won't see a recovery until 2010." He added, "The [economic] downturn is longer and deeper than we foresaw a year ago."

The auto exec added that it now expects the Russian market to stagnate next year; previously, Russia was the fastest-growing European market for Ford. Mulally sighed, "The problems of subprime and credit crunch are now all over the world." However, he clarified that the automaker's European production plants have the "flexibility" to withstand the expected downturn, and Ford generally has "the liquidity to deal with it."

As proof of that sufficient liquidity, Ford on Wednesday repaid $1.5 billion in debt as part of a routine transaction. Morgan Keegan analyst Pete Hastings told the Detroit Free Press, "It means they paid with cash," rather than drawing on a credit line. Hastings noted, "In a normal credit market, this wouldn't even merit a mention. But it isn't, so we're trying to interpret every little move."

Despite Ford's apparently stable cash position, investors today seem to be erring on the side of caution. The stock is down about 4% this afternoon to trade at $4.37. Today's plunge extends the equity's slump beneath staunch resistance from its 10-week and 20-week moving averages.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Earlier today, Doug McIntyre wrote about the Congressional passage and presidential approval of $25 billion in loans to help the American auto industry modernize its plants.

And the pigs still won't leave the trough. The Wall Street Journal reports (subscription required) that the $700 billion bailout plan rejected by Congress on Monday also included a provision to help the auto industry recover from the bad car loans it made, similar to what the housing industry faces. According to the Journal, "A Washington bailout of bad car loans could loosen the flow of financing for potential car buyers and spark demand for new cars and trucks. It likely would free up funds that could be invested in securities backed by auto loans, bringing down borrowing costs for auto lenders."

If the housing bailout is nuts, a bailout to make it easier for people to get car loans is insane. Nearly every finance expert would agree that car loans are something to be avoided, and most people should be buying used cars unless they can afford to pay cash for a new one. The government should not commit taxpayer funding to make it easier for people to overextend themselves buying depreciating assets to impress their friends.

The auto industry is deep in the weeds right now, particularly in the United States. American manufacturers are hemorrhaging money -- General Motors (NYSE: GM) alone has lost $30 billion in the last three years -- as high gas prices and an unofficial but very real recession forces consumers to abandon their American-made trucks and SUVs by the millions.

Even with the pronounced shift toward smaller and more efficient cars, the overall auto market in the U.S. is shrinking thanks to the poor economy, and most manufacturers are selling fewer vehicles. But one company stands out as an exception to the rule of declining sales: Honda Motor Ltd. (NYSE: HMC). In the first seven months of 2008, Honda increased its sales by over 3%. By comparison, Chrysler lost 22%, GM fell 17%, Ford (NYSE: F) lost 14% and even mighty Toyota (NYSE: TM) saw a decline of 7%.

An interesting quote in The New York Times from Tetsuo Iwamura, the president of Honda's North American operations, sheds light on how Honda has managed this impressive feat. Honda, Iwamura said, "is a philosophy-driven company." And what is Honda's philosophy? According to Iwamura, "we want to make Honda the company that society wants to exist."

From an American perspective, this is an extraordinary statement. American automakers have followed a very different philosophy for many years, one in which fat and easy profits from poorly designed and hopelessly wasteful SUVs take precedence over the long term health of both the auto industry and society as a whole. But Detroit is suffering now for its short-term approach, while Honda is showing both consumers and investors the value of planning for the long run. And at $32 a share and a P/E of 10, Honda looks like a good long-term buy.

With great fanfare, General Motors Co. (NYSE: GM) announced it was spending $500 million developing the Chevrolet Cruze, a so-called next generation compact car. Investors, who have seen the value of GM's stock slip 60 percent this year, could not have cared less. Shares of the company, which for now is the largest automaker, closed down for the day.

Granted one car is not going to revive General Motors' fortunes, but the Chevrolet Cruze clearly is a step in the right direction. For one thing, it's got a nice design though it certainly did not blow me away. The automaker clearly is trying to build on the popularity of the Chevrolet Cobalt whose sales are up 16 percent year to date. It aso underscores how General Motors is trying to be more efficient.

"The Chevrolet Cruze was designed and engineered by our global teams in Europe and Asia Pacific and will be manufactured in those regions in addition to the assembly plant here in Lordstown, Ohio," said Chief Executive Rick Wagoner in a press release. "Our goal for the Chevrolet Cruze is to lead in fuel economy in this very competitive car segment.

But it's also taking a gamble here.

As the Wall Street Journal points out, "The auto maker believes growing demand for nicer, well-equipped small cars coupled with a dramatic redesign for the Cruze will be enough to command sticker prices well beyond the $15,000 base price of a compact Chevrolet Cobalt."

For Wagoner to keep his job, he's going to have to sell lots of them along with the company's pick-ups and SUVs, which the company and consumers are less enthused about.

Advertising revenue at big media companies is being beat up by the economy. Traditional media like newspapers are losing boat loads of money to the internet.

With most large TV network companies showing flat revenue and newspaper chains struggling with double-digit losses, the falloff in auto advertising is likely to make the second half much worse.

According to The New York Times, "In the first quarter alone, the auto industry spent $414 million less on advertising than in last year's first quarter, according to TNS Media Intelligence."

What can media companies do? For one thing, give money-losing companies a discount. For a newspaper or magazine to print extra pages adds only modest expense. Putting extra banners on internet sites costs next to nothing. The same is true with TV ads. They cost money to produce but not to run. In other words, cut-rate car ads are better than no car ads. Media companies may have lower margins, but at least their revenue does not have to drop of a cliff.

From a media standpoint call it the "auto company preservation act.". Detroit may not make it out of its current dilemma alive. Any help it gets increases it chances to become healthy again. If the domestic auto business can recover, so will its marketing spending.

Douglas A. McIntyre is an editor at 24/7 Wall St.

As expected, Ford Motor Co. (NYSE: F) posted dreadful results. But the numbers were even more awful than Wall Street feared, sending shares of the company plunging in premarket action.

The number three automaker -- at least for now --- posted a net loss of $8.7 billion, or $3.88 a share, for the second quarter including a $5.3 billion write down of its North American auto business and another $2.1 billion charge. A year earlier, Ford had a net profit of $750 million, or 31 cents per share. Revenue excluding special items fell to $38.6 billion compared with $44.2 billion during the year earlier period.

Excluding one-time expenses, the loss was $1.38 billion, or 62 cents. On that basis, analysts had expected a loss of 27 cents on revenue of $34.6 billion, according to Thomson Reuters.

To no one's surprise, Ford (NYSE: F) will detail its plans to dive into the small car market when it announces earnings on Thursday. It is a lot late to get religion.

According to The New York Times, "as part of the huge bet it is placing on the future direction of the troubled American auto industry, Ford will realign factories to manufacture more fuel-efficient engines." The bet is a smart one, but it may not matter.

Ford is now close to a decade behind the curve. Companies such as Toyota (NYSE: TM) have produced small cars for the US market since the days they began to open dealerships in America as Ford chased immediate profits in pick-ups and SUVs. The margins in these products were outstanding, but their success relied on gas staying at $2 a gallon forever. Things did not work out that way.

Ford will now go through a process of more cost cutting, firings, and expensive retooling of its plants. To make all of this work, the car company will have to borrow money or sell more stock. In either case, current shareholders are likely to be diluted.

Ford has been so slow to move into the market for fuel-efficient vehicles that it may have trouble staying solvent if the US car market stays very soft for the next two years.

That means Ford's future as an independent company could be in jeopardy.

Douglas A. McIntyre is an editor at 247wallst.com.

Ford Motor Co. (NYSE: F) will be handing out employee buyout offers next week at plants in Michigan and Ohio. Just as the automaker continues grappling with a declining market share and lower sales, it needs to trim its workforce to match.

The automaker has already given employees at plants in Ohio and Kentucky the option of leaving the company with a payoff, so this is nothing new. Offers will be made to employees at 14 sites throughout Ohio and Michigan, with possibly more buyout offers coming to more facilities in August.

As expected, the buyout offers are for five assembly plants in addition to supporting facilities that make engines and transmissions. It's a pretty good guess that all those plants and parts come from the large truck and SUV world, as Ford said it is slowly trending away from building so many of these vehicles. What's amazing is that the automaker warned of slowing truck and SUV sales way back at the end of 2005. It's just now seeing the fruits of it not paying much attention pay off.

Ford's Way Forward plan to return to profitability won't come in 2009 as expected, and will probably show progress in 2010. If gas prices stay near current levels into 2009 and Ford still hasn't rearranged its product portfolio to be as flexible as the U.S. customer needs it to be, it may be beyond 2010 for Ford to see a consistent profit.