Honda (NYSE: HMC) closed at $22.40 Thursday. HMC overall option implied volatility of 92 is above its 26-week average of 42 according to Track Data, suggesting larger price movement.

Toyota Motor (NYSE: TM) closed at 67.09 Thursday. TM overall option implied volatility of 70 is above its 26-week average of 39 according to Track Data, suggesting larger price movement.

Tata Motors (NYSE: TTM), an Indian car manufacturer, closed at $4.50 Thursday. TTM overall option implied volatility of 84 is above its 26-week average of 61 according to Track Data, suggesting larger price movement.

Nissan (NSADQ: NSANY) closed at $8.57 Thursday. NSANY overall option implied volatility of 76 is above its 26-week average of 49 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

This is part of a weekly series about the auto industry. Record-high oil prices and a global slowdown have contributed to a crisis in the sector, and this column will highlight some of the interesting stories that emerge as that crisis plays out.

Monthly sales figures for the auto industry are enough to make a grown man cry -- especially if that man works for an American car company.

General Motors (NYSE: GM) saw sales fall a whopping 45% in October compared to October 2007. Potential GM partner Chrysler fell 35%, while Ford (NYSE: F) dropped 30%.

Auto sales were down 32% for all manufacturers. If the current sales rate continues, the industry will sell about 10 million fewer cars this year.

There are a number of interesting details in this month's report. For one thing, it looks like GM is in even worse shape than previously thought. Analysts have frequently stated that GM is burning about $1 billion a month, giving it less than a year until it faces a cash crunch crisis. But the astounding drop in sales at GM suggest that the cash crunch might hit sooner than that -- GM may have just a few months before bankruptcy becomes a very real possibility.

Another interesting detail: the SUV love affair is officially dead. Sales of Chevy Suburbans are down 70% year-over year, Tahoes down 77% and Yukons down 76%. And this despite the fact that gas prices fell dramatically during October.

U.S. stock futures fell Friday morning, after two days of gains and ahead of some economic data that will likely show further economic distress. The economic releases are: the employment cost index for q3, personal income and spending for September, the Chicago manufacturing PMI and the University of Michigan's consumer confidence for October. Global stocks generally declined Friday as oil again dropped below $65 a barrel to around $63.50. Meanwhile, the Bank of Japan cut its benchmark interest rate to 0.3%, which was less than expected, causing the Nikkei to drop by 5%.

Chevron (NYSE: CVX) is due to report this morning, following Exxon Mobil's (NYSE: XOM) record profit reported Thursday.

Burger King (NYSE: BKC) reported first quarter earnings of 38 cents per share, ex-items, below the consensus of 39 cents. Revenues came in at $674 million, versus the consensus of $667.6 million.

Electronic Arts (NASDAQ: ERTS) shares dropping 14% in after-hours trading after it posted a wider loss and reduced its annual forecast. The game maker also announced layoffs.

Sun Microsystems Inc. (NASDAQ: JAVA) on Thursday reported a $1.68 billion fiscal first-quarter loss due to charges, but sales also fell more than 7% from a year ago. In all, ex-items, the company would have lost $65 million, or 9 cents a share on revenue of $2.99 billion for the quarter. Shares were down 3% in after-hours.

Honda (NYSE: HMC) is about to unveil a truly mind-boggling ad campaign. On stretches of highway in California, it has created sets of grooves, similar to the rumble strips found on highway berms, that are spaced and sized in a way that creates a series of musical notes as cars drive over them. Apparently, altering the vibration of the auto can create a scale of notes that are readily discernable to passengers of the right vehicle that are passing over them at the right speed.

The video explains the process far better than I can, but I must say, I found the audio produced by driving over the test strips striking. At best, I expected a lick or two of Dirty Deeds Done Dirt Cheap, but the effect produces a much wider range of sounds, not at all similar to the percussion usually produced by rumble strips.

If they ever put them on highways I drive frequently, however, I want a say in what music is getting grooved. Can you imagine a daily commute passing over the same advertising jingles month after month? I'd probably detune my car.

Thanks, Advertising Age

Disclosure: I own four shares of Honda. Not quite controlling interest, eh?

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.

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?

Congress has passed it and the President has approved it -- a new package giving Detroit's Big Three loan guarantees to cover $25 billion for upgrading their plants. This should allow them to move production to more fuel-efficient cars.

If the move had come two years ago, it might have worked. According to The Wall Street Journal, "The auto loans can't come soon enough," said Kip Penniman, automotive analyst at KDP investment Advisors. Soon enough was a long time ago.

Ford (NYSE: F), GM (NYSE: GM) and Chrysler do not just suffer from having cars that are not fuel-efficient. They also have cars that are still perceived as not being as "good" as many models from Japan and Europe. Toyota (NYSE: TM) and Honda (NYSE: HMC) have not only posted better quality numbers in most industry surveys, they also have a tremendous lead in new technologies including hybrid engines.

By the time Detroit has new plants in place, the Japanese will be two or three years ahead with the next generation of technology for saving energy costs and building cars with few defects.

Detroit now has to face a tough credit market in which consumers find it harder to get car loans. It has to face a recession in which car buyers cannot afford new cars at all. It already faces a Japanese industry that is well-financed and well ahead in critical technology.

Getting $25 billion is not enough. Something along the lines of $100 billion might be more like it.

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

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

Sure, the economy is in the tank and the stock market is teetering on the edge of a very steep cliff. But the severity of the situation really hit home with shocking news about a beloved secular American feast day: General Motors (NYSE:GM) announced this week that it will not buy ad time during the 2009 Super Bowl (that's Super Bowl XLIII for all you Roman numeral lovers).

It seems that it was just yesterday that GM was promoting the new 2007 Cadillac Escalade at Super Bowl XL. Sales of the Escalade -- perhaps the most over-the-top of the gigantic SUVs that so many Americans fell in love with -- had been falling, and GM hoped to recapture consumers' bling-addled imaginations with a shiny new model displayed, appropriately enough, on a fashion runway. It was not to be, though, as Escalade sales continued to fall.

And who can forget GM's adorable suicide robot ad from Super Bowl XLI? Some stick-in-the-muds found it a bit insensitive, but it did get people talking. It did not, however, help GM increase its sales.

And that's the basic problem. Critics have long argued that GM relies too heavily on cheap redesigns and flashy advertising to sell cars, rather than focusing on good engineering and construction. The fact that GM is bailing out on the biggest advertising day in the media calendar suggests just how desperate it is. Maybe it has learned the lesson that you can't sell cars no one wants, no matter how much you spend on advertising. Let's hope that the money saved on Super Bowl ads is spent on making cars that can compete with Toyota (NYSE:TM) and Honda (NYSE: HMC).

Honda Motor (NYSE: HMC - option chain) shares are slightly higher today after a US executive said that despite expected weaknesses in the U.S. auto market, HMC should be able to achieve a slight increase in sales in 2009 on the strength of its hybrid and fuel efficient models. This is good news for the company, but not that great, since recent sales the past few years have not been so hot. The slight growth will be compared to a lower baseline, but it is still better than a sales decline. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on HMC.

HMC opened this morning at $30.06. So far today the stock has hit a low of $30.00 and a high of $31.18. As of 12:35, HMC is trading at $30.05, up 0.05 (0.2%). The chart for HMC looks bearish and S&P gives HMC a negative 2 STARS (out of 5) sell ranking.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 16.3% return in just four months as long as HMC is above $25 at January expiration. Honda would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.

HMC hasn't been below $27 at all in the past year and has shown support around $30 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in HMC.

Ford's (NYSE: F) latest PR push is based around the idea that the company can make money on smaller cars. Traditionally the big margins in the car industry have been on pick-ups and SUVs. But consumers don't want those anymore.

According to The Wall Street Journal (subscription required), "Ford Motor Co. is expressing new confidence about the auto maker's ability to sell new small cars at a profit in the U.S. market, citing new data about how Americans are beginning to value premium features and dynamic design over vehicles desired simply for their size." That assumption is based on two factors, neither of which is likely to be true.

Ford believes that it can cut its cost base low enough to make money on cars that retail for $20,000 or less. Chopping production expenses may lower overall costs, but it also cripples the company's ability to "turn on the juice" if car sales make a sharp rebound. Fewer factories with fewer workers puts some brake on the company's ability to quickly push out more vehicles in a short period of time. Cars that can't be made can't be sold.

The other challenge to Ford's assumption is that it can get a large market share in a part of the industry that is already dominated by Toyota (NYSE: TM), Honda (NYSE: HMC), and Nissan. As Ford ramps up, the Japanese car makers are moving into hybrids and improving their own small cars. Most consumer satisfaction surveys put Ford behind the Japanese in terms of the quality of their products.

Aside from those few small details, Ford's plans should work just fine.

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

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.

Honda (NYSE: HMC) is being appropriately praised for building its model line around fuel-efficient cars, as it has for years. According to The New York Times, "No major automaker in America is doing better than Honda, whose sales are up 3 percent for the first seven months of this year in a market that has fallen 11 percent."

Honda did not make big money on SUVs when they were the profitable sector of the market. Now, it is not taking huge losses and has net income that is the envy of Detroit.. But its strategy may be short-sighted, especially outside the U.S.

There is plenty of evidence that SUVs are extremely popular in China, the world's second largest car market. The vehicles also do well in the Middle East and some parts of Latin America. As gas prices increase, so does the temptation for governments in large nations to underwrite the cost of gas as is already the case in China. Because of this kind of policy, oil prices may stay high, but gas prices could drop.

Honda's long-term plan to be the provider of the cars that use the least gas may look good now, but petrol prices could swing down again. Then the company may not look so brilliant.

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

'Tis the election season of 2008 and any industry in a mess has exactly two months to make its case and claims to a beneficent US Congress. Who, after all, wants to harm or neglect the already struggling US auto industry.? With General Motors (NYSE: GM) and Ford (NYSE: F) having reached their lowest market valuation in more than a generation, why not ask for the bailout...ah, sorry, assistance...ah, sorry again...low interest loans to re-tool their respective factories for future fuel efficient vehicles.

What's the deal here? The energy bill from 2007 allows for low interest loans to create next generation technologies for energy efficiency. The auto makers want to press Congress hard for their share when the summer recess is over...and certainly before the election. The auto makers say they need $50 billion to be competitive again.The rub as some see it is the desire of the auto makers asking for twice the amount that has been earmarked for such projects. Why not, asking for twice the amount right now is opportunistic as politicians are running for re-election and want to hang their hats on any good issue that will save jobs and create goodwill.

General Motors (NYSE: GM) has just announced that it will extend warranties on may of it used cars. According to Reuters, "GM said it would begin offering a 12-month, 12,000-mile "bumper-to-bumper" warranty on all used cars and trucks certified as eligible for the repair coverage by participating GM dealers." The firm has already said it will return to the extensive use of incentives to clear out new car inventory.

GM should have a better solution than to lose more money on each new car it sells and add costs to market its used products. It turns out that is not the case. Vehicle sales in the U.S. are just too awful and Toyota (NYSE: TM) and Honda (NYSE: HMC) take more market share each month.The talk of GM doing into Chapter 11 rings a bit more true as the time passes.

GM is now out of options. It still makes money overseas, but that is overwhelmed but its North American deficit. GM says it will stick to supporting all of its brands except the Hummer. That may end up not being true. GM did say it was moving away from incentives. It did not work out terribly well.

GM has a couple of brands that still sell only a modest number of cars. Saab is one. Saturn in another. Saab could be sold. Saturn could be closed. Saturn might not even be missed.

If GM has to continue using incentives, it will get to the point where it cannot support the marketing and product development costs of all of its brands. That point is probably coming in the next quarter.

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

One of the few hopes the U.S. car companies have had is that they have been perceived as closing the quality gap with Japanese models. Recent JP Power data shows Detroit running in a dead heat with imports in the consumer satisfaction race.

That bubble has been at least partially burst due to new information from the University of Michigan's American Customer Satisfaction Index. According to the AP, "U.S. car buyers are growing less satisfied with their purchases from domestic automakers while their Asian and European competitors continue to improve."

In the new survey, BMW and Lexus tied for the top spot followed by Honda (NYSE: HMC) and Toyota (NYSE: TM). Several brands from GM (NYSE: GM) and Ford (NYSE: F) dropped down the rankings.

At the risk of stating the obvious, Detroit is in such deep trouble that a perceived drop in the quality of its cars can only make its recovery more difficult. There are several ways around that, but none of them are very palatable.

GM yesterday introduced buyer incentives across most of its brands. That means its margins on those vehicles will be lower. It may pick up some market share, but any victory there will be costly. The U.S. car companies are cutting their marketing budgets, so they cannot "advertise" their way out of the problem.

Effectively giving cars away can certainly help hurdle the quality barrier, but losing a lot more money could sink a large U.S. auto company.

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