General Motors Corp. (NYSE: GM) lost its crown as the world's largest automaker to Toyota Motor Corp. (NYSE: TM) after 77 years. This is hardly a surprise.

As Bloomberg News notes, "GM's 2008 sales fell more than 11 percent to 8.35 million vehicles, according to a company statement today. Toyota posted a 4 percent drop to 8.92 million."

It's not worth crying about 600,000 or so vehicles. The U.S. auto industry has much bigger problems. Consumer spending is still moribund. Credit markets are still frozen so much that otherwise qualified buyers are having difficulty getting their purchases financed.

GM, for its part, continues to hang on by its fingernails. Last month, it received $4 billion in funding from the TARP which is supposed to hold the automaker over through March. It will need tens of billions more. Pimco has quit a bondholders committee set up to negotiate a debt-for-equity deal for GMAC, according to Bloomberg.

Fiat probably hoped to get a 35% share of Chrysler without putting any skin in the game. Why would the Italian auto company expect that? May it is just naive. The US government is unlikely to let a foreign company get a piece of a US company for free, especially if the Treasury is writing the checks to keep the American company afloat.

According to The Wall Street Journal, "Chrysler LLC has found an international partner in Fiat SpA but the auto maker isn't out of the woods, mainly because the deal is contingent on Chrysler getting $3 billion in additional government loans."

Why should Fiat walk in and get a piece of a firm that could be turned around using taxpayer cash? The answer is that it shouldn't. The Treasury should insist that Fiat put at least as much money into Chrysler as it is.

Fiat is really not giving Chrysler much for its 35% in the US car company. It will help retool some plants and use them to build small cars that both companies will sell. Whether that helps Chrysler won't be known for some time. In essence Fiat is getting its stake almost for free.

Treasury may want to tell Fiat that bailout money is in short supply especially with the economy getting worse. Fiat ought to pay its own way if it wants to get a piece of the American car market.

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

The Holy Grail of the car business now is to build rechargeable batteries making the use of fossil fuel limited or unnecessary. The work on these projects has gone on for years, but finding a technology that will take a car hundreds of miles without a new charge has proved difficult.

Now, several companies are pulling together to make a battery and they want the US government to hand them a huge amount of cash. According to The Wall Street Journal, "Fourteen U.S. technology companies are joining forces and seeking $1 billion in federal aid to build a plant to make advanced batteries for electric cars, in a bid to catch up to Asian rivals that are far ahead of the U.S."

What the group probably does not talk much about is that several companies in Asia already are in the process of developing and marketing advanced batteries. So, why waste the government's money? Some analysts are worried that many of these batteries will be sold to car companies in Japan and Korea and that US car companies will not get their fair share.

Since when is the US government the bank for developing technology that is already moving along well outside the US? If American car companies want the batteries, they simply have to be willing to pay a competitive price for them. The federal government is about to spread enough money around the car industry so that it does not need to add to that by reinventing the battery wheel.

If American companies cannot innovate as fast as Asian rivals, that's tough luck.

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

The $15 billion bailout designed to prevent U.S. automakers from going bankrupt -- especially General Motors Corporation (NYSE: GM) and Chrysler L.L.C. -- need to avoid bankruptcy has hit a snag, according to the New York Times. Ford Motor Company (NYSE: F) is not in as dire shape.

"The last-minute disagreement centered on a single word - with the Senate bill requiring the automakers `to comply with all applicable federal fuel efficiency and emissions requirements' and the House bill referring to `all applicable fuel efficiency requirements,' which would also include state emissions rules that the automakers oppose," the Times said.

Senate aides told the paper that the House bill was "doomed" because it would be rejected by the Senate. Many Republicans also oppose the bailout. These sorts of fights are nothing new.

Detroit has fought against tighter CAFE (Corporate Average Fuel Efficiency) standards for years, arguing they made them less competitive. The companies were able to beat back these efforts thanks to Rep. John Dingell, who chaired the Energy and Commerce Committee. Dingell could make bureaucrats, particularly those at the EPA, quiver at the mention of his name. They dreaded receiving "Dingell grams", lengthy often acerbic letters designed to heap scorn on policies he opposed -- and there were many. But Dingell is gone now.

The lord does work in mysterious ways, particularly when there is a government bailout involved.

According to Reuters, one of Detroit's largest churches placed three hybrid SUVs on its alter as its congregation prayed for a Congressional bailout.

"We have never seen as midnight an hour as we face this week," the Rev. Charles Ellis told several thousand congregants at a rousing service at Detroit's Greater Grace Temple., the news service said. "This week, lives are hanging above an abyss of uncertainty as both houses of Congress decide whether to extend a helping hand."

Other religious groups in Detroit also urged Congress to pass the help for the auto industry. None, though, appears to have turned their sanctuary into a car dealership. It almost seems as though they were worshiping a golden calf. But my question for these sincere people is what are praying for?

Ford Motor Co. (NYSE: F) Chief Executive Alan Mullaly has a friend in cantankerous billionaire Kirk Kerkorian.

Kerkorian, who was Chrysler's largest shareholder before the company was acquired by Daimler, is snapping up shares in the automaker, which recently posted an unexpected $100 million first quarter profit. Kerkorian's Tracinda Corp. owns a 4.7% position in Ford and plans to offer to buy as much as 20 million shares at a 13% premium to Friday's close, according to The Wall Street Journal (subscription required).

"Tracinda has been following Ford closely since the company released its fourth quarter 2007 results which indicated that Ford's management was starting to achieve highly meaningful traction in its turnaround efforts," the company said in a statement. "Last week this was reinforced by Ford's first quarter 2008 results, achieved despite the difficult U.S. economic environment. Tracinda believes that Ford management under the leadership of Chief Executive Officer Alan Mulally will continue to show significant improvements in its results going forward."

At least that's how Kerkorian feels now.

US car companies have been deviled for years by imports from companies in Japan. Economic circumstances may allow companies including Ford (NYSE:F) and GM (NYSE:GM) to turn the tables. A weak dollar and new UAW contract should make it feasible for US car companies to export their products to other countries.

According to The Wall Street Journal: "General Motors Corp is looking to export U.S.-made vehicles to Europe as well as to China and Latin American markets such as Brazil." One problem with the plan is that some foreign countries add tariffs to US car products. But, if the plan can work, even on a limited basis, it may add much-need revenue to the operations of the big car companies.

If the export program does take hold, a race will begin. The car market in the US may support sales of less than 15 million vehicles this year, down from 16.1 billion last year. The domestic auto firms may be able to offset some of that by shipping cars to other markets. But, can that make up for faltering sales in their home market?

As always, the most significant challenge to US car manufacturers is that any program they develop is likely to be matched by car companies in Japan and South Korea. This divides the pie into smaller piece and may undercut the viability of the export plans.

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

March is expected to be another bad month for US car sales. Domestic manufacturers are likely to have the worst of it. According to Reuters, "A sharp decline in March sales could also heighten concerns that the world's largest market for cars and trucks is on track for its weakest year since 1994." JD Power and other analysts now expect US car sales to be below 15 million units, well short of the 16.1 million sold last year. If the recession deepens, the number could move toward 14.5 million.

A very sharp drop in units sales could take $40 billion in vehicle sales out of the market compared to last year if the average car costs $25,000. For Detroit, which now only has about 50% of the US market, that would be a disaster.

Despite money taken out of the car companies through factory closings, layoffs, and a new UAW contract, the Big Three are still not set up for an extremely sharp drop in revenue. Ford (NYSE:F) and GM (NYSE:GM) trade about where they did just over two years ago when there were rumors of bankruptcies.

Those rumors will start again, and for good reason.

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

Even with a good contract with the UAW nearly in hand, Ford Motor (NYSE: F) is warning that with its falling sales a better union contract may not be enough to balance costs with revenue.

The deal with the union calls for Ford to operate six plants it was going to close. That will cost a lot of money, but it was a necessary concession to get the contract signed.

Ford is warning that overall US car sales may drop next year. Mark Fields, head of the company in the Americas was quoted by The New York Times as saying, "If you look at all the indicators out there, there is more risk than opportunity," And Ford will have to put up more than $13 billion in cash to start a new UAW fund to cover worker health costs.

That leaves Ford in a bit of a bind. Its monthly sales figures in the US have been down 13 months in a row. On a good day it has about 15% of the US vehicle market. US and Japanese competitors are unlikely to give it a break. Auto parts suppliers have probably been pushed to the limit in terms of giving Ford better prices. Some of them have been driven into bankruptcy.

So, Ford can cut more of its white collar work force and fire most of its temporary work force. But once that is done, there is very little left. Which means, if Ford cannot hold its current market share, it has a really big problem.

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

The cornerstone of GM's (NYSE: GM) contract with the UAW is that the company will fund a health benefits pool run by the big union. The car giant will probably move $30 billion into the pool and will part with a $50 billion employee healthcare liability. In turn, GM will guarantee a certain number of jobs.

That deal may not work for Ford (NYSE: F) or for Chrysler for that matter. The No.2 US car maker needs expense relief now. Its sales keep falling, and were off over 20% in September. Bloomberg quotes one expert who sums up the issue nicely: ``Ford isn't interested in job guarantees'' as the company shrinks, said Gary Chaison, a labor professor at Clark University.

Ford's problems are acute. While it may want to get health and pension liabilities off of its balance sheet, it still needs to cut is North American costs by a large amount. GM's sales seem stable, but Ford's past focus on pick-ups and SUVs has put it in a bad spot. As fuel costs have risen, these vehicles have become less attractive. Without large cuts in workers, its North American operations could continue to lose billions of dollars a year.

The chances for a strike in Detroit are rising again. But, this time the target will probably be Ford.

Douglas A. McIntyre is a partner in 24/7 Wall Street.

Ford (NYSE: F) does not want to miss its financial targets, no matter what. The car maker's recovery is now backed by the hope that current negotiations with the UAW will go well. The talks may lead to a new benefit pool, funded by the Big Three and run by the union. This would take billions of dollars in employee liabilities off Ford's balance sheet.

But, Ford faces a growing economic headwind. With home prices falling, consumer credit debt rising, and oil above $81, the old US auto firm may not get enough financial traction from UAW concessions. As one Ford senior executive put it to The Wall Street Journal [subscription required] "If we see weakness on the revenue side, we have to take up the slack on the cost side."

But at a company that has already slashed tens of thousands of jobs and closed plants, where are the extra cuts? Ford believes that its market share in the US will level out at about 13% and it has to "right size" its costs to make money at that sales level.

Ford can't articulate where another set of cuts might come from because there may not be much left to cut. It has already squeezed suppliers. A number of the largest auto parts companies are already in Chapter 11. It has laid off a large number of its white collar workers. If it could have taken out more, Wall Street would expect that would have happened.

There simply may not be much more left to cut at Ford, And, if a recession comes that could become a very big problem.

Douglas A. McIntyre is a partner at 247wallst.com.

GM (NYSE: GM) and its rivals Ford (NYSE: F) and Chrysler have been exploring setting up a fund, managed by the union but financed by the car companies, to handle union member health-care benefits. The move would take tens of billions of dollars in liabilities off the companies' balance sheets, but funding it could take as much as $60 billion.

The union has not warned to this program as fast as GM would like, so it has proposed an alternative--huge job cuts. According to The Wall Street Journal (subscription required), this plan would results in "deeper, more-painful cuts." That would probably include jobs and benefits.

The deadline for the UAW negotiations to finish is September 14. While it would not be odd for talks to go beyond that, the tension between the car companies and union is likely to grow.

While the UAW management may be patient, its membership may feel otherwise. Benefits are important to them, but having jobs is probably higher on the list. Any hint of massive firings is likely to rub them the wrong way.

The union does not have to go straight to a nationwide strike to send its message. It could stage work stoppages at plants that produce popular cars which are in low supply.

And, then it gets ugly.

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

DaimlerChrysler AG (NYSE: DCX) and Kirk Kerkorian's Tracinda Corp. are renewing their long-standing feud in the pages of the Wall Street Journal.

Kerkorian, the billionaire who tried to buy Chrysler in 1995, last week offered to by the money-losing automaker for $4.5 billion and even promised to put down a $100 million deposit. DaimlerChrysler's executives, though, aren't taking the bid seriously, the Wall Street Journal said.

According to the Journal, Tracinda wanted DailmerChrysler to shoulder some of Chrysler's $15 billion in pension liabilities and retiree health care costs, something that other bidders haven't sought. DaimlerChrysler also balked at Tracinda's request to for exclusive rights to conduct due diligence for 60 days, the paper said.

Of course "people familiar with the matter" in Tracinda's camp see things differently. DaimlerChrylser, which is holding meetings with the private equity companies interested in buying Chrysler, denied to the Journal that its discriminating against Kerkorian.

This is what people mean when they talk about negotiating though the press.

The campaign of leaks and counter leaks has just begun.

General Motors Co. (NYSE:GM) gave its top executives raises for the first time since 2003. They deserve every nickle.

Chief Executive Rick Waggoner got restricted stock valued at $2.8 million and 500,000 options. Product guru Vice Chairman Bob Lutz got a $1.8 million restricted stock award and 250,000 options, the same award as Chief Financial Officer Frederick Henderson, according to The Wall Street Journal (subscription required).

Executive pay is supposed to align pay with performance. Though General Motors still has loads of problems, it has out shined its rivals. I realize that given the current state of the auto industry that may not be much of a compliment.

Unlike its competitors, General Motors is profitable even though its recent quarterly results missed Wall Street expectations because of losses at its former finance unit. General Motors shares have jumped 44 percent over the past year, better than the 36 percent gain at DaimlerChrysler AG (NYSE:DCX) and the 3 percent rise at Ford Motor Co. (NYSE:F).

The only problem with the awards is their timing. General Motors is going to ask for concessions from its biggest U.S. union this year, the Journal said. I can only imagine the "why should we take cuts when you got bonuses" conversations at the bargaining table.

There is some justification to that argument.

Then again, General Motors would be ill served if its top executives left in the middle of a restructuring because they got a better offer to go somewhere else.