Hard Times for Detroit Automakers--and for the Upstarts Who Challenge Them

"All this merger talk is very interesting," said a Chrysler executive who asked not to be identified. "There is certainly always a time when things like that make a lot of sense."

And this is that time. It would have been unthinkable as little as a year ago, but now it's all about the cash. GM, which lost $18.8 billion in the first six months of 2008, has $21 billion of it left on hand. With car sales in the basement, the company could run through that by the end of the second quarter.

Chrysler bid for cool last month was no less than three proposed EVs.

Chrysler's big asset right now is not its SUV-heavy product line: It's $11 billion in cash. GM's share price dipped below $5 in the wild flailings of the last week, and its market capitalization fell to a marginal $3.6 billion.

A billionaire could put the whole U.S. auto industry in his or her back pocket right now. As the Wall Street Journal reported, "At Friday's prices, someone with $8 billion or so lying around could have bought all the public stock in both companies [Ford and GM], and had change left over."

If Chrysler were to be merged with General Motors -- and it looks about 50-50 at this point -- they would create a rather lopsided company. Both entities are like luxury liners that didn't want to turn around when the SUV phenomenon started to go south. And when they did start to move, they both had the same green idea: series hybrids, in which a small gas engine acts as a generator to drive an electric motor (which is what turns the wheels).

GM was first with the ingenious Chevrolet Volt, which is due to be on the market by 2010, but then Chrysler, not to be outdone, said it had two cars just like it (a Jeep Wrangler and a Chrysler Town and Country minivan). As announced in September, the cars had huge lithium-ion battery packs. But the small gas engines are in the let's-look-around phase.

Chrysler also showed off a really cool Lotus-bodied battery electric car, the Dodge EV, with the equivalent of 268 horsepower and a zero to 60 time below six seconds. It's clear that the target this time was the Lotus-bodied Tesla Roadster, like the Volt a media darling.

The Tesla may not be much of a role model.  Despite uncritical press attention and piles of celebrity orders for the $100,000 sports car, the company announced big layoffs this week and deposed its chief executive. It also said its very promising $60,000 Model S electric sedan would be delayed. Only 27 roadsters have been delivered to customers.

Echoing the perfect storm affecting the auto industry, Tesla's chief investor, Elon Musk, said in a blog posting, "These are extraordinary times.... Our goal as a company is to be cash-flow positive within six to nine months." For Tesla, that means focusing on the Roadster and the company's powertrain sales to other car companies. And putting off the Model S.

Don't be surprised if GM, Ford and Chrysler announce similar layoffs and product consolidations. It's tough times for Detroit.