A little noticed trade on shares of VW may cost hedge funds billions of dollars in losses. And several investment banks are also rumored to have been on the losing end of the trade. What happened is that these investors bet that VW shares would fall and they were spectacularly wrong. Besides their own poor judgment, German financial reporting practices are coming in for some of the blame.

Losses could top $38 billion for 100 hedge funds that sold 13% of VW shares short. Specifically, traders shorted the common shares and bought the preferred. The logic was that since the common traded at a 50% premium to the preferred, the common would drop so the spread would narrow. Instead, the common shares soared and the preferred ones collapsed.

Why the short squeeze? This weekend Porsche revealed that it had lifted its stake in VW from 42.6% to 75% using derivatives. This was a problem because it meant that the free float available to cover a short position was reduced from 45% to 5.8%. The resulting panic buying drove VW's market capitalization above that of ExxonMobil (NYSE: XOM). Now shareholders are angry at how Porsche could use derivatives to gain a 45% stake in VW without disclosing them.

Ford (NYSE: F) does not have much too much left to sell now that Jaguar and Range Rover are gone. Selling the Lincoln division might be a good idea. Nice luxury brand. But, it shares too many engines and parts with Ford brands.

All Ford has left that could be pushed out the door for cash is Volvo. Ford has said it will never sell the division, but desperate times call for desperate measures.

Word comes today from The Times, that Volvo may go to BMW to help the Ford balance sheet. The paper reports that "Ford may sell Volvo, the Swedish car-maker, to BMW as part of a drive to raise cash, say senior car-industry sources."

Ford might get over $2 billion for Volvo, which is about what it got for Jaguar and Range Rover. But, that amount would probably cover less that four month's cash burn.

The fact of the matter is that if Ford cannot get direct aid from the government in the next quarter, the entire company will have to be sold off in parts or in whole. The only two companies large enough to make a transaction of that size are Toyota (NYSE: TM) and Volkswagen. Toyota may not want to risk the U.S. government challenging it having 30% of the American car market if it made the acquisition.

No doubt Volvo ends up at VW.

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

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 value of the shares in VW, Europe's largest car company, may have passed those of Toyota (NYSE: TM) for some of the wrong reasons, but it has become the world's most valuable car company nonetheless. VW is facing a possible buyout from its largest shareholder, Porsche, and that may be keeping its shares high.

However, the fact of the matter is that Toyota's share are down. And for good reason. According to Bloomberg, "Toyota has fallen 56 percent since its peak at 8,340 yen in February 2007. By contrast, Volkswagen rose to all-time high at 304 euros on Sept. 18."

The facts behind the reversal may be fairly simple and they may not go away soon. Toyota has substantial exposure to the moribund U.S. market where auto sales are dropping as much as 25% some months. While VW would like to be in North America with more market share, it may be lucky to be a bit player for now.

To demonstrate how tough the US car environment is, shares in Ford (NYSE:F) dropped to to $2.92 yesterday, a multi-decade low, and down from a 52-week high of $9.24.

It used to be that having a big market share in the U.S. was the most desirable thing in the world for an international car company. Having almost no share may be better now.

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

Blame it on the Lunar New Year holiday. Vehicle sales in China dropped over 6% in August to 629,000 units.

Even with a day off, sales should be growing 15% to 20% just like they used to. According to The Wall Street Journal, "In 2007, China's vehicle sales rose 21.8% to 8.79 million units"

The Chinese vehicle market is supposed to be the salvation of General Motors (NYSE: GM), Ford (NYSE: F), VW and just about every other car company on Earth. If it does not deliver, where else can the car companies turn? Perhaps Luxembourg or Easter Island.

The news from China is a shocking bulletin to U.S. auto companies and their overseas peers. When the global economy slows, not even the world's fastest growing countries are immune. The North American market may be bad, but it is not alone in that.

The news will not do much for auto firm stocks. With trouble in the U.S. and EU and gas prices that are still too high, getting some traction in one or two big markets might have kept hope alive.

Ford and GM really do need those $50 billion in loan guarantees from the U.S. government. Now they have another reason to bring to Congress.

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

The Big Three seem to think that they are troubled money center banks. They want Washington to get them out of their financial problems. According to The Wall Street Journal, "Battered by high gasoline prices and weakened earnings, the Big Three auto makers and their suppliers are now seeking significantly more help from Washington in the form of government-backed loans than the $25 billion they had previously been authorized to receive."

While the auto companies are important to the U.S. economy, they can be "replaced." If General Motors (NYSE: GM) or Ford (NYSE: F) fail, their brands and manufacturing facilities will almost certainly be bought by an overseas car company. VW has said it would like a larger market share in the U.S. So has Nissan. Both have the balance sheet to buy assets from a failed U.S. car company.

There is a sort of cruel reality to the thought that companies considered pillars of the U.S. economy could be gone sometime soon. It is certainly an indication that manufacturing is become less and less critical to the overall GDP of America. It is also a sign the the inefficiency of Detroit's habits have finally gotten so severe that it needs to turn to the government and not the capital markets for aid.

If the car companies cannot make it and cannot raise money on their own, they should be allowed to fail. That may mean that Toyota (NYSE: TM) will become the largest seller of cars in the U.S., but there was never any rule that said bad management would continually be rewarded.

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

Although Ford Motor Co. (NYSE: F) has fallen on hard times -- like much of the auto industry -- the company will eventually come back around. Its success, like that of competitor General Motors Corp. (NYSE: GM), will be on its ability to be flexible enough to build the vehicles customers want as needs change.

That's a large order, though. Ford CEO Alan Mulally recently stated that his Way Forward plan was behind schedule, and the automaker wasn't expected to post an annual profit until 2010. Ford knows it needs to be more globally flexible or it won't even make that extended target. Profit centers like SUVs are so 1999.

On top of all that, a Volkswagen (OTC: VLKAY) executive recently said that the German automaker intends to surpass Ford to become the third-largest seller of vehicles in the world. That's quite a bold prediction and it puts Ford under even more pressure to get automobiles delivered to customers with increasing manufacturing and selling flexibility. As of last year, Volkswagen sold 6.19 million vehicles to Ford's 8.55 million. Is one year enough of a background to declare VW a future winner over Ford? Possibly.

Then again, Japanese automakers Honda Motor Corp. (NYSE: HMC) and Nissan Motor Co. (NASDAQ: NSANY) are not going anywhere and will continue to put up a great fight. Toyota Motor Co. (NYSE: TM) is currently the king of the Japanese automakers, right behind GM globally. If Volkswagen really believes it can charge into the third spot, it better have the global vehicle finesse to know what its regions' customers want before they want it -- and then, make those sales.

As if Detroit needed any more bad news, there are reports that yet another foreign producer of sensible, efficient and fun to drive cars is planning a raid on the domestic market share of the SUV-producing giants.

Apparently Germany's Volkswagen (OTC: VLKAY) is considering building a new plant in Alabama to produce Jettas and next-generation Passat sedans, and possibly a small new SUV called the Tiguan, as well as the Audi A5. The plant will cost an estimated $788 million and employ several thousand workers. No decision was made about the plant's location at a meeting on Wednesday by Volkswagen's management board, and VW is reportedly also considering sites in Tennessee and Michigan.

This would not be the first time VW produced cars in the U.S. From 1978 to 1988, the company produced over a million vehicles, mostly Rabbits, in New Stanton, Pa., near Pittsburgh. But VW's quality and reputation suffered in the 1980s, and the company now has less than 2% of the American market. However, VW is making a great comeback across the globe, and senior managers must think the time is right to start selling more cars in the massive North American market, the world's largest.

The economy may not be in a period of "negative growth," but the car industry is, at least in the US and Europe. After weak November sales in the US, numbers out of the EU look just as bad.

Sales of new cars dropped 1.1% in Europe last month, with the largest companies hurt the most. Sales by Volkswagen, Europe's largest car maker, fell 7.2% to 255,825 vehicles. "Consumer uncertainty fed by, amongst others, sharp rises in oil price, loss in purchasing power and regulatory changes'' has hurt demand in Europe, according to Bloomberg.

Of course, GM (NYSE: GM) and Ford (NYSE: F) also have large auto sales operations in Europe as well. That means that they will likely struggle in both their home market and the EU.

The two largest US car companies are now left with Latin America and Asia, especially China, as their only real growth markets. It is no wonder that both stocks trade near 52-week lows. Ford has very little presence in China. GM is tied with VW as the biggest car seller in China, but local companies want to take some of those sales away.

Europe may have been the only real hope that US vehicle manufacturers could have a broad recovery in 2008. And it appears that it is a hope that is gone.

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

Volkswagen has continued to do well in its home market and the rest of Europe. It is also the leading seller of cars in China, competing with GM (NYSE: GM) for the top spot. But, since it sold its compact Beetle sedan here in the 1960s, VW has become a nothing brand in the U.S.

Now the management of VW wants to change all of that, and compete with Toyota (NYSE: TM) for U.S. share using high quality, no-frills cars. According to The Wall Street Journal, Volkswagen has said it wants to sell about 1 million cars annually in the U.S. by 2018, compared with about 330,000 last year.

VW plans to add 12 new models over the next several years and keep prices of models like the Jetta and Passat below comparable Toyota models.

And, that will pick up market share in the U.S.? VW, dream on.

VWs don't sell well in the U.S. because no one wants to buy them. It is not as if the company does not have plenty of dealerships. Its luxury model, Audi, does just fine. But how many car buyers say, "I just have to have one of those new VWs"?

The German car maker is also coming up against stronger products from the locals, Ford (NYSE: F) and GM. Selling cars in the U.S. is part of a life-and-death struggle for them to hold sales in their home market.

VW should keep its focus on China.

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

Want to get your customers' attention? Swear at them. That seems to be the latest marketing strategy from Big Auto, who's peppering ads with barely bleeped-out swear words. While the most famous one is Dodge's Caliber advertisement showing a panel of sweet imaginary creatures (the fuzzy puppet, the fairy unicorn, 'Binky') reacting with fear to the auto, the most profane and disturbing is probably Volkswagen's crash commercial, where two friends get in an accident and one of them says, "holy shi " [fade to black].

Sure, people swear. Lots of people swear, and I'd be willing to bet that a majority of VW and Dodge customers are potty-mouthed. (I know, sweeping generalizations, but that's what marketing is about folks!) But is this really the best way to communicate brand? Shock tactics?

It depends, I'm sure, on the consumer. DaimlerChrysler AG (NYSE:DCX) unit Dodge's vehicles are heavily marketed to the wanna-be gangster audience (Snoop Dogg and 50 Cent are famous for wanting to be the first customers of Magnum, Charger, and the Chrysler 300), for whom "crap" is probably not even considered swearing, whereas Volkswagen AG (FRA:VOW)'s consumer profile is famously young and understatedly hip. Hip enough, it seems, to say "holy shit" without blinking an eye.

As for me? I don't give a damn about the swearing (see what I did there?). I'm much more disturbed by the depiction of the accident in the VW commercial, which always jolts me out of my primetime TV buzz and makes my heart beat pitter-patter. Entirely not the shock I want while I'm being entertained -- like the cute little hedgehog says in the Dodge commercial, it doesn't make feel all warm and fuzzy inside.

Bill Ford says that the company that bears his family's name can look to Asian sales to help offset the disaster of its North American operations. In the first nine months of 2006, the Ford Motor Company (NYSE:F) sales in China more than doubled compared to the same period in 2005.

Ford's problem in China is simple. It has all the same competitors in China that it has in North America, plus some players who are local. Ford's optimism about the world's most populated country in the world is based on a false assumption, which is that it can do better against its rivals in China than it does in its home market of the United States.

VW sold almost 525,000 vehicles in China the first nine months of the year. GM sold 645,000 vehicles there. Honda Motor Company's (NYSE:HMC) sales for the period were 226,000. Toyota Motor Company's (NYSE:TM) were 203,000. Ford lagged with under 115,000 units in the first nine months.

With Ford well behind the other car companies in the large Asian market, Mr. Ford has to be able to do the math. China won't save him.

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