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.

Something has to give if Detroit is going to get Congress to loan it money. Some suppliers may have to take haircuts on their prices. Some debt-holders may have to convert their paper to equity or accept cents on a dollar for payouts.

But, the UAW may be the party that gets hammered the most. Labor costs are still the largest problem for The Big Three. It is not just daily wages. It is the tremendous health and pension benefits for current employees and retirees. It is the funding of the VEBAs created to move pension liabilities off the car company books into funds controlled by the UAW.

The Wall Street Journal reports "UAW officials, including its president Ron Gettelfinger, are said to understand that they are under pressure to deliver cost concessions." That may mean elimination of "job banks" which allow certain workers to be paid even when they are not working. Those are mostly people who can be recalled quickly if the car companies need to up production. The need for more people is unlikely to be necessary as sales keep falling.

The question becomes how often UAW management can go back to the rank-and-file and request they they take less. That is on top of the less they took less than two years ago when the union agreed to concessions to help keep The Big Three healthy. That certainly did not work out.

While the union's president may recommend that the cuts are necessary to keep Detroit open and keep some jobs intact, UAW workers may not feel that way. Their ultimate leverage is a strike. US auto companies can't to stay open for long if workers walk off the job. And, one thing the industry cannot handle is an inability to ship cars.

UAW members know they have power. Now, the question is whether they will use it.

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

As General Motors (NYSE: GM) brass flail around Washington desperately seeking to avoid bankruptcy, the company is taking some draconian cost-cutting steps (subscription required) at its Detroit offices and plants. The company has stopped replacing the batteries in wall clocks, changed the brand of wipe-up towelettes it buys, and eliminated voice mail at most of its plants.

The company is doing everything it can to conserve cash while it begs for a taxpayer-funded bailout but, unfortunately, CEO Richard Wagoner has been unwilling to take a step that would save the company cash and send a message of solidarity to the company's employees and the taxpayers who are being asked to foot the bill for a restructuring. Last week, Rep. Peter Roskam, R- Ill., asked Wagoner whether he would be willing to cut his salary down to $1 per year while the company navigate through the mess he has helped to navigate it into. He declined.

Here's what so ridiculous about this: In 2007, Mr. Wagoner was paid $14.4 million, on top of another $10.2 million in 2006. In retrospect, he deserved literally none of that. Not a nickel. So the fact is that Congress should be asking him to contribute a good chunk of that to the bailout effort, not merely asking him to take a larger salary cut for 2008 or 2009. But he won't even do that.

Before Congress spends another second even discussing a bailout, they should toss Mr. Wagoner out on the street.

Detroit can't sell cars. Perhaps it is because they are too expensive. Perhaps buyers can't get credit. Or, maybe autos made in Japan and Germany are simply better-built.

No matter. The Big Three are now looking at a program to stimulate car sales sponsored by the US government.

According to The Wall Street Journal, "On Monday, Sen. Charles Schumer (D., N.Y.) plans to send a letter urging the Federal Reserve to make financing available for the auto companies' lending arms, which would allow them to offer more auto loans."

Will that help? If the loans are attractive enough, certainly. They may have to be better than zero percent financing. The car companies have tried that. Perhaps the government can make the first year of payments for car buyers and leave the consumers to pay the last two years. That would be as good as 33% off the purchase price.

Why stop there? Home builders want a bailout. The government could make a 20% down payment for people who would like to buy a new house. That would leave a mortgage on 80% of the home. The government could make the balance of the mortgage interest free.

Every industry in America is going to make a grab at bailout funds. The Treasury will have to hire thousands of analysts just to sift through them

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

As Detroit seeks a $25 billion bailout, the automakers are pinching pennies so hard that their fingers may start to bleed.

General Motors Corp. (NYSE: GM), which earlier this month axed 1,900 jobs, recently scaled back its presence at the Los Angeles Auto show and canceled its annual star-studded party at Detroit's North American International Auto Show, according to USA Today.

The largest automaker -- at least I think it still is, for now -- is keeping a tight lid on the distribution of office supplies. It's always a sign of a troubled company when the nice gel pens in the supply closet are replaced with cheap Bics that have a habit of exploding in your shirt pocket.

Of course, bonuses and holiday parties are things of the past for employees of GM, Ford Motor Co. (NYSE: F) and Chrysler LLC. Though these types of measures save money, they are like putting a kid's BandAid with a picture of SpongeBob on a patient with a gunshot wound. The reasons for these moves are as much political as financial.

We all know the impact that the current economic slowdown has had on American auto sales, and today we get news that European car sales are also feeling the pain, with auto sales dipping 15% during the month of October.

According to the European Automobile Manufacturers Association, or the ACEA, October marks the sixth straight month that new-car registrations have fallen, but things have been much worse since the summer, when concerns of a global recession really started to spread.

General Motors Corporation (NYSE: GM) was the worst hit major American automaker, which had a 25% decline in sales in October on a year over year basis. Japanese maker, Toyota Motor Company (NYSE: TM) did not fare to much better, with a 24% dip in sales. Ford Motor Company (NYSE: F) did a little bit better, with a reported 11.9% decline in October sales. Europe's largest automaker, Volkswagen, held up the best among the majors, with "only" a 7.9% drop.

On Monday I told a TV interviewer that General Motors (NYSE: GM) would probably not last the week. It is looking more like that prediction will come true. With $16.2 billion in cash, GM needs $10 billion to pay its bills. But it will go through that by the end of 2008 since it is probably in default on $6 billion worth of credit agreements which would require GM to pay back those loans immediately. And GM has already been bankrupt in an accounting sense for years -- its liabilities exceed its assets by $58 billion ($12 billion more than in 2007). This raises many questions: Why is GM in this condition? What are its options? Should the U.S. government step in? Does it matter? Where do the bailouts end?

GM's basic problem is that it spent decades making excuses for why it could not give customers superior value rather than building better vehicles. With 2.5 million jobs on the line, Chapter 7 -- a complete liquidation of its assets -- could throw all these people out of work. Who are these people? Auto companies are big buyers of manufactured steel, aluminum, iron, copper, plastics, rubber and electronics -- and their dealers are people too. One study estimates that the workers in these companies could lose $125 billion in income.

So the U.S. government could provide a financial guarantee and some money to encourage financial institutions to give debtor-in-possession (DIP) financing which would allow GM to operate in Chapter 11. As a condition of the deal, its top executives ranks should be replaced with strategists who can decide which parts of GM to close or sell, and which can operate profitably. A better solution would be a pre-packaged bankruptcy where new contracts with creditors would be negotiated before the filling -- but GM is probably too complex to accomplish this ahead of time.

One of the options in the current auto industry crisis that Detroit does not like to talk about is that one or all of The Big Three may be broken into pieces and auctioned off. It may be a fairly good idea, although it would probably not read well as a headline in the two dailies in The Motor City.

According to Reuters, "The $11.7 billion the struggling automaker said it had as of end-June has seen a substantial decline because of the company's deteriorating performance marked by a 35 percent slide in October sales and increasing cash incentives.

Since Ford (NYSE:F) recently sold Jaguar and Range Rover and GM (NYSE:GM) is trying to sell Hummer, breaking auto firms into parts does have recent precedent. Ford reportedly got about $2 billion off its two small luxury brands. But, that was before the worst part of the auto sales downturn hit.

Chrysler has several small units like its Mopar parts division, but the value in the company is its three units: Jeep, Chrysler, and Dodge. Some of the Chrysler models like the "300" series still sell well. Dodge has pick-up and sports car franchises which may not be worth much. The Jeep brand may be more valuable than the other two. Demand for four-wheel drive vehicles may not be strong in the U.S., but it is in a number of emerging countries.

Valuing Chrysler is difficult because it is impossible to say what majority shareholder Cerberus would take for its 80%. It is safe to say that, based on Ford and GM's market caps, Chrysler is not likely to go for more than $3 billion, even in pieces.

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

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.

General Motors Co. (NYSE: GM) Chief Executive Rick Wagoner, the longest serving head of an automaker, is personally lobbying members of Congress to back a federal bailout of the struggling automaker, which wants to merge with its much weaker rival Chrysler LLC.

Bloomberg News, which broke the story, reported that Wagoner's "involvement includes attending meetings, such as one with Treasury Department officials last week in Washington." You can bet that Michigan's powerful senior member of Congress, John Dingell, is attending many of the same meetings as Wagoner. GM no doubt is employing an army of lobbyists -- both Republicans and Democrats -- to press its case. The company, which for now may be the largest, has little choice.

GM and Chrysler would need between $10 billion and $12 billion to integrate their operations, according to a Citigroup note cited by Bloomberg. Combining the two fading industrial behemoths would be a logistical nightmare. Imagine trying to combine disparate systems for everything from personnel to purchasing to accounting. Let's not forget the byzantine IT systems at both companies as well.

Economically, it's hard to justify bailing out GM. Decades of incompetent management at the Big Three resulted in the industry drowning in billions of debt. The problem with telling the industry "no" is political. Dingell is a 1,000-pound gorilla in Congress. The auto industry continues to have considerable clout in Washington as well. Their argument is simple: if Wall Street fatcats can get a federal bailout, why not us?

The problem with rescuing Wall Street is that lots of struggling industries are going to pass the hat in Congress. What about the airlines? The retail sector? Pharmaceuticals? When does it end?

Here's a shocker: with credit markets about as tight as they've ever been and huge writedowns and a depressed stock market leaving few banks with much cash to invest, General Motors (NYSE: GM) is having trouble finding anyone to bankroll a prospective "2 drunken sailors" merger with Chrysler.

The Wall Street Journal reports (subscription required) that "several of the potential lenders remain unconvinced. Credit markets remain extremely tight, and a number of lenders are fearful of the complexity and scale of combining two industrial giants amid an economic downturn. . . But GM, Cerberus and its banks aren't ruling out selling a stake in the new company to the federal government."

That seems to be the philosophy du jour in corporate America: if you can't find a private investor dumb enough to pour money into your pipe dream, there's always the federal government. The sad thing is that, given the pivotal role that the Rust Belt can play in swinging elections, the special interest groups may be able to sway lawmakers into scraping the bottom of the broken piggy bank to fund this abortion.

The Journal reports that the companies' pitch to investors touts cost savings of as much as $10 billion because of expense slashing and synergy. But private investors or lawmakers looking it over would do well to remember the golden rule of M&A: estimates of cost savings are nearly always too optimistic, and integration costs are usually underestimated.

Toyota (NYSE: TM) is the world's largest car company. It makes the most money and has the strongest balance sheet. Over the last decade it has picked up market share in every region of the world and laid waste to The Big Three in their home market. By most calculations, Toyota is the No.2 car seller in the U.S., behind only GM (NYSE: GM) The Japanese auto company has 15% of the American market.

Based on sales though September of this year, Toyota is hurting in the U.S., but is still doing better than most of its competition. Its Prius hybrid is one of the hottest cars on the market. But, with annual vehicles sales in the U.S. dropping to under 14 million units for the year, even Toyota cannot stand the heat.

The big Japanese company has given in to one of the most desperate moves any car company can make. It is giving out "interest free" loans.

The reasoning behind the move seems a bit contrived. According to The Wall Street Journal, "The campaign is aimed at boosting the auto maker's market share at the expense of its struggling Detroit-based rivals." That sounds bogus. If Toyota was doing especially well, it would not need incentives to pick up share.

In reality, Toyota is bleeding in the U.S., along with its rivals.

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

For Detroit automaker General Motors (NYSE: GM) the tough times are being felt outside of the United States as sales declines in Europe are forcing the troubled manufacturer to suspend production at some European factories.

As the financial crisis that is being felt in America continues to spread, demand for autos outside of the country are also feeling the pressure, and in August, sales in Europe fell by 16%. As a result, General Motors has decided that it needs to reduce its 2008 production by about 40,000 vehicles by the end of the year.

To accomplish this production shift, the company is going to be shutting down several factories for a few weeks. Starting next week, GM's factory in Eisenach, Germany, where the company produces its Opel brand, is going to start a three-week shut down period. This news comes as another of the company's factories, one in Bochum, Germany is completing a current two-week shut down period to help reduce the company's inventories. Other temporary shut downs are taking place in England and Spain.

With car sales in the U.S. and Europe in a disastrous decline, the markets of Latin America, India, and China were going to keep American auto companies from falling apart altogether.

That dream appears to be reaching a period of wakefulness. And, the reality is not terribly pleasant. China reported a fall-off of vehicle sales of about 6% in July. India is joining the party. According to The Wall Street Journal, "India's vehicle sales last month fell 4.4% to 94,584 cars from 98,893 cars a year earlier."

While the news may make Washington more sympathetic and help the likes of Ford (NYSE: F) and GM (NYSE: GM) to get huge loan guarantees, the longer-term outlook for global vehicle sales may be much worse than Detroit can imagine.

The theory has been that penetration of cars and trucks among consumers in China and India is low. As the middle class grows, so will the demand for new vehicles.

But, what if the theory is flawed? Slowing economies in developing countries may push back the growth of the middle classes by several years. The new car buying class may not emerge. The people in China and India who can afford cars may already own them.

Detroit was hoping it had been saddled with all the bad news it could handle. Maybe not.

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

August was yet another tough month for American auto maker Ford Motor Company (NYSE: F) as the company reported today that during the month, U.S. sales were off by a mind boggling 26.5%.

During the month, Ford was able to sell a total of 155,172 light vehicles, which was 3.6% below July's figures of 160,990, which was the worst month for U.S. car sales in the past 16 years.

As expected, truck sales really took a beating last month for the company. With consumers dealing with record high gasoline prices, truck sales have been weak for some time now, and last month the company saw truck off by more than 32%. Its car sales fell by nearly 9%.