It probably made sense and has for at least a year. General Motors (NYSE: GM) and Chrysler have had merger talks, and probably had them recently. The largest car company in the U.S. has been speaking with Chrysler's owner Cerberus.The conversations may have been slowed by the wild stock market.

According to The Wall Street Journal (subscription required), "Uniting two of the country's Big Three auto makers would prove a watershed for an industry knocked down by high production costs and a looming recession."

But the plan may not work. GM and Chrysler both appear too weak position to weather the bad economy, even together. Analysts believe that GM will be low on money next year, and Chrysler is no better off.

What would make sense is that Chrysler makes a good merger partner for Honda (NYSE: HMC) or VW. Both would like a larger market share in the U.S. Both have strong balance sheets, and both could rip out duplicate costs.

Putting together two troubled U.S. auto operations gains very little for either company.

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

The Wall Street Journal reports (subscription required) that General Motors (NYSE: GM) was recently in discussions to acquire Chrysler from Cerberus Capital Management, the private equity firm in the unpleasant position of owning that train wreck.

Once you learn the details, it's not quite as dumb as it sounds at first. According to the Journal, "Cerberus proposed a swap in which GM would acquire Chrysler's automotive operations, and in turn give Cerberus its remaining 49% stake in GMAC."

Given what a mess GMAC is, the proposal provides an idea of what Cerberus thinks of Chrysler's long-term prospects. It's a little bit like a few college students trying to trade 98 Degrees CDs for Dawson's Creek posters.

It's pretty much moot because the events of the past week have made a deal of this size impossible to put together, at least for now. But it's still interesting to think about. Given what a dump GM is, it's hard to imagine that an acquisition of this size and complexity would help matters. CEO Richard Wagoner (seen at right mulling the merger) already has his hands full.

GM insists that bankruptcy is not on the table. But so does every company -- until it files.

With General Motors Corporation (NYSE: GM) begging the federal government for cash in the face of a deteriorating balance sheet and a hideous fundamental outlook, Standard & Poor's has placed the company on credit watch negative. S&P says the company has adequate liquidity for the balance of 2008, but that the outlook is murkier for 2009.

Shares of GM are currently down more than 20% but, suspiciously, had been lagging the market badly long before CNBC broke the story about the rating move.

I consider myself a big believer in contrarian investing, and I'm certainly not one of the "Sell stocks now! It's only going to get worse" crowd, but it's hard for me imagine how things will get better for General Motors. The balance sheet's a mess, the industry's in trouble, and General Motors has to battle with leaner overseas competitors. Don't even get me started on the legacy costs.

GM will probably bounce around, but it's hard to imagine that it's final destination will be anywhere other than bankruptcy.

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.

September proved to be yet another tough month for American auto maker Ford Motor Company (NYSE: F) as the company saw its U.S. sales drop by a massive 34% during the month.

The company noted that we are in the middle of an "atmosphere of caution" as the troubled economic environment, and tightening credit conditions are still taking their tolls on the automotive industry.

We will hear more troubling news later today as more auto makers release their September numbers, and analysts are expecting to hear more of the same from the other major names in the industry. Fellow Detroit auto maker General Motors Corporation (NYSE: GM) is expected to announce sales dropping around 27%, while Japanese maker Toyota Motor Corporation (NYSE: TM) is expected to show a sales decline of around 17%.

Today's news from the major names should really come as no surprise, since we have been hearing much of the same through most of the year. Through August, nationwide sales of vehicles was down 11.2%.

As consumers continue to express their concerns over the overall economy it is going to continue to be tough for car dealers to get shoppers into their showrooms. Bigger incentives should help a little, but until consumers start to turn more positive on the overall economy, it is going to be tougher and tougher to sell them new cars.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

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.

With General Motors (NYSE: GM), Ford (NYSE: F), Chrysler and the rest of the Detroit auto industry looking likely to get a big chunk of the $25 billion in taxpayer-funded loans they need to remain viable, there's another group that needs more credit for the industry to turn itself around: consumers.

Light-vehicles sales are expected to have fallen 26% year-over-year for September and Goldman Sachs auto analyst Patrick Archambault told clients in a note that "Decreased credit availability [is] constraining sales even at prime levels of credit quality."

The industry will get the loans it needs to build new cars, but unless consumers can get the loans they need to buy them, the big three are still in trouble. Add that to historically high gas prices and a generally weak economy and it's hard to see any reason for near-term optimism for the industry. Longer-term, of course, lower-cost overseas producers of better cars will continue to eat Detroit's lunch.

I'll make a not so bold prediction: with liabilities far exceeding its assets and an inability to turn a profit, General Motors will be bankrupt, merged, or otherwise irrelevant within the next five years.

With little fanfare -- and much less reasoned debate -- the House of Representatives approved $25 billion in artificially low interest, taxpayer-funded loans for the U.S. auto industry. The Senate and President are expected to provide their approval in the next few days, but the details on how loans would be doled out will not be decided until after the November elections.

Given the $700 billion gift to bankers currently being pushed through Congress, it would be hard for Washington to take a principled stance against an auto industry bailout. But the industry had been hoping that the terms and conditions of the loans would be decided before the election, when both parties are looking to win votes from industry workers in battleground states like Ohio and Michigan. Analysts say that Congress may be feeling less generous after the elections.

With bailouts for the auto and banking industries underway, now would be a good time to deliver the elegy for capitalism and free markets. We have now transitioned into a hybrid model -- privatized reward and socialized risk -- where companies can earn billions and pay out bonuses when times are good, and count on handouts when the going gets tough.

Shares of General Motors (NYSE: GM) are down more than 6% today, perhaps in part because of this unhappy line (subscription) from The Wall Street Journal: "In another unhappy chapter for the strapped industry, U.S. auto makers and their finance arms have found their access to credit further restricted because of the upheaval in the markets."

Tightness in the commercial paper market and the companies' deteriorating prospects are making it difficult for Ford (NYSE: F), GM, and Chrysler to gain access to the cash they need to operate. GM's "CCC" rating from Fitch isn't helping matters either.

What's the solution to this? If you believe the auto industry, it's a taxpayer-funded "loan" of as much as $50 billion. That's right: no private lender is stupid enough to throw good money after bad at the cash-burning Detroit auto companies. But why shouldn't taxpayers? After all, GM spends more than $8 million per year on lobbyists.

Prudent lawmakers should take the hint from the credit markets: if private business don't think GM is a risk worth taking, it's irresponsible to toss our money into it too. The auto lobby can whine all it wants about the state of the credit markets but the reality is that the main obstacle for GM is its own deteriorating financial health.

Even though it is good news for General Motors (NYSE: GM) that the economy may not be forced all the way to it knees by the credit crisis, one by-product is that oil did bounce higher. Almost anything that helps GDP and consumer spending could put pressure back on commodities.

GM still hopes that the government will give it and the rest of the U.S. car industry $25 billion or more in loan guarantees. The companies say they can't afford to rebuild their plants to manufacture more fuel-efficient cars without the cash.

GM showed that it is drifting toward greater financial trouble when it drew down on its line of credit yesterday. According to The Wall Street Journal, GM "said it intends to draw down the remaining $3.5 billion of an existing $4.5 billion secured revolving credit facility to boost its liquidity amid uncertainty in the capital markets."

No one looking at the action would think that it is a sign that GM is doing better than it was earlier in the year. Due to falling car sales, it is doing worse. By exhausting one of its last life lines, GM is getting very close to a liquidity crisis of its own.

The government has, in theory, endless access to capital. It can print money and drive up inflation. It can increase tax bills and bring in more capital. Yesterday, GM sent out a loud signal that it needs cash. But, Congress may be sick of writing checks. GM is trying to get money at a time when the bank is closing.

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

General Motors Corp. (NYSE: GM) may be selling its commercial truck division to Japan's Isuzu Motors. The rumor mill is churning this one up quite well this morning, but would it make sense for GM?

Sure -- it already has a solid relationship with Isuzu and the Japanese automaker already is the #2 commercial truck vendor in Japan anyway. It would give GM some solid cash while making Isuzu the largest commercial truck manufacturer in its home country.

It would be kind of a reversal for GM if this deal does go through, as the American automaker has given help to Isuzu many times in the past when the Japanese automaker fell on hard times. Now that GM is on the ropes (but no KO yet), the tides have turned quite a bit. Instead of owning 49% of Isuzu, Isuzu may be buying almost all of a major GM division.

GM may even retain some ownership of its commercial truck division but sell the majority of it to Isuzu. There was a deal in progress late in 2007, but an agreement never materialized due to economic changes that began to affect credit markets. We all know where the American economy (and global markets) have been in the last week. Isuzu still has not confirmed reports that it has received an offer, so we'll be waiting.

General Motors Corp. (NYSE: GM) has said its new global small car that will compete with Japanese automakers like Honda Motor Ltd. (NYSE: HMC) and Toyota Motor Co. (NYSE: TM) will be able to sell for more than the competition, as it will have better gas mileage than small cars do now. The new Chevrolet Cruze was announced Monday as GM prepared to celebrate its 100th anniversary, and at a precarious time for the storied automaker.

The new Cruze, set to be unveiled for sale in the summer of 2010, will be a much larger car than what it replaces -- the Chevy Cobalt -- but will have up to 40 miles per gallon, beating almost all the fuel efficiency figures of cars much smaller like the Honda Civic and Toyota Corolla. Therefore, GM believes it will be able to charge more for the Cruze. It's a risky but calculated move made necessary as the profit margins from SUVs and large trucks are evaporating as consumers move away from those products and into smaller vehicles. At some point, automakers will have to up the prices on smaller and mid-size vehicles to ensure they remain profitable. That is, unless gas prices fall back down and the more profitable, gas-guzzling SUVs fall back into style.

It's no secret that GM needs to make more money per vehicle than its Japanese competition, and GM general manager Ep Peper said as much yesterday. Peper pointed out that more features in newer cars will justify higher prices, but consumers won't really care or be swayed by the argument. When prices rise, everyone gripes. When they fall, shopping sprees happen. Note to GM: consumers are very fickle -- get used to it.

General Motors (NYSE: GM) is proposing it put up several more billion dollars to help auto parts company Delphi out of Chapter 11. At one point the firm was part of GM but was spun out to the public in a deal that shareholders must have come to regret.

With the car business operating under pressure from falling vehicle sales, parts suppliers are being squeezed to drop prices. This has made the Delphi situation worse.

According to Reuters, "Under the deal, which met quick opposition from Delphi creditors, GM would provide Delphi with a total of $10.6 billion in support, including the assumption of $3.4 billion in pension obligations for Delphi's factory workers."

GM is trapped. It needs the flow of products from Delphi to keep its plants running. It has contract obligations to Delphi's pension funds. But, GM is already running short of cash and may have to bring in more money next year, especially if auto sales worsen.

GM is now begging Congress for $50 billion in loan guarantees to upgrade plants for the Big Three. The idea is to finance a changeover to operations that would build more fuel-efficient cars.

But, GM may need the loans just to stay in business.

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

This post is part of our Ads Gone Bad series. Share your thoughts and memories of this ad in the comments, and be sure to check out our other posts on marketing gone wrong.

No doubt you've heard the expression, "You're setting a bad example." Perhaps the most interesting application of the concept that I've ever witnessed was the strict scolding received by General Motors Corp. (NYSE: GM) in regard to a $5 million television ad . In that television advertisement, which was intended to promote GM's quality obsession, a cute but ill-fated assembly line robot imagines itself committing suicide by jumping from a bridge after making a slight error.

Last month I wrote that the big three Detroit automakers were planning to ask Congress for $50 billion in "loans" (He said with a laugh), blaming soaring gas prices and a difficult macro environment for continued struggles.

Today's Wall Street Journal reports (subscription required) that "Top auto executives, including General Motors Corp. (NYSE: GM) Chief Executive Rick Wagoner, will launch a lobbying push this week for billions in government loans to help beleaguered auto makers and their suppliers."

The companies are looking for the previously reported $50 billion in low-cost loans, warning that bankruptcy could be a possibility down the road if they don't get their money.

This would be a good time for people like Mr. Wagoner to be reminded that God, and hopefully the federal government, helps people who help themselves. From 2003 through the second quarter of 2008, GM has blown just under $5 billion on dividends which should, theoretically, be paid out to shareholders only after the company has assured that it has adequate cash to fund operations. This is like the old adage about the child who killed his parents asking the court for mercy because he's an orphan.

Here's what Congress should say to Mr. Wagoner before giving GM a nickel: since he, in his capacity as CEO and chairman of the company, is at least partly responsible for the company's precarious financial position, would he consider lending the company the more than $24.5 million he made in the last two years under the same terms he's asking for from taxpayers?

Michigan lawmakers will be working overtime to push this one through, but there's no reason taxpayers should be giving money (a loan on special terms is no different than a gift) to a company that is still paying dividends on its common stock and lavishing excessive pay on poorly-performing executives.