GM IS ON ITS LAST LEGS

There is only one number that really matters in today's financial report from General Motors: how much cash it has in the kitty. And the answer is, not enough. GM is now burning through its cash reserves at a rate that will run short before Christmas.

Every month GM spends $13 billion to pay all the bills that keep the company running. And it has to pay out even more on top of that to meet other obligations, like paying the UAW for the VEBA or bailing out Delphi. Like all other companies, GM keeps a reserve of cash on hand that it can dip into when it doesn't sell enough new cars to get the money to pay its bills. But that cash reserve is running out fast.

WHAT IF GM COLLAPSES?

Anyone watching the auto industry these days is acutely aware that General Motors is hurtling towards disaster. It's burning through cash reserves at a rate that will put it in Chapter 11 sometime next year, no matter how much management says "that's not an option." It's still being crushed by its legacy costs, yes, even after concessions from the UAW. And it just witnessed its own finance arm, GMAC, essentially pull out of the automotive lending business.

What was an emergency just a month ago has now blossomed into a full blown crisis. Unless something is done quickly, General Motors could collapse.

This is why we're hearing talks of a potential GM-Chrysler merger, and of a bailout from the Federal Government.

QUALITY PROBLEMS WITH QUALITY RATINGS

Pity the poor car buyer who wants to be a smart consumer and reads all the quality studies before going to the showroom. How do you know what to believe?

For example, Consumer Reports' Reliability Survey gives props to the Scion xD. But Strategic Vision's Total Quality Award gives props to the Scion xB. And J.D. Power puts Scion near the bottom of the list of its Vehicle Dependability Survey. Who do you believe?

The problem is that these studies all measure different aspects of quality. Unfortunately, the mass media doesn't have time to delve into these distinctions and so all we get is their sound-bite analysis. Their favorite is that the Detroit Three are lagging behind the "foreign automakers" in quality.

I'M LOSING MY BET ON DIESELS

A few years back I made a bet with a former Director of Engineering at General Motors. I bet him five bucks that Americans would fall in love with modern diesel engines and would want them in their cars. Specifically, I predicted that diesel sales in passenger cars would reach 1 million units by 2012. He bet it wouldn't happen.

Last year I ran into him and he ruefully conceded he was probably going to lose the bet. But that was last year. Now I'm pretty sure I'm the one who's going to lose. What a difference a year makes!

HOW TO KICK OUR (IMPORTED) OIL HABIT

There's a lot of talk about making the U.S. energy independent. Or getting off oil altogether. I guess anyone who believes it can easily be done has never taken the time to count how many millions of barrels of oil we import every day. Damn do we use a lot of oil!

Some say the country is in trouble because we don't have an energy policy. That's not true. We do have a policy. It doesn't have a grandiose name attached to it, but for decades now, with strong bi-partisan support, the U.S. has maintained very low gasoline taxes, has legislated cleaner fuels (which yields less fuel), and has put strict limits on drilling.

HOW FORD WILL SAVE MERCURY

When Alan Mulally came to the Ford Motor Company two years ago he finally forced the company to face reality. It wasn't going to go anywhere, he told his executive team, unless it put all its resources into resuscitating the Ford brand on a global basis.

So Jaguar and Land Rover were given the heave-ho, and Volvo was put "under review." The decision was made to let Mercury slowly die, and Lincoln's turn-around was put on the back burner until the Ford brand revived.

THE DOWN SIDE TO LITHIUM BATTERIES

Uh-oh. In the pell-mell race to develop lithium-ion batteries for plug-ins, EV's and hybrids, has any automaker taken a hard look at where all that lithium is going to come from? Guess what? Not only are global lithium supplies pretty tight, prices are about to skyrocket.

Today, the United States imports almost all of its lithium. We get most of it from Chile, then Argentina, and a little bit from Canada and Zimbabwe. The only producer in America is actually a German company, Metallgesellschaft, which has a mine in Nevada. Yet, even though we import most of our lithium, the United States is the world's largest processor of the material.

SIX QUARTERS TO DOOMSDAY

2010 is shaping up to be a pivotal year in the American auto industry. From a product standpoint there will be a lot of interesting hardware in showrooms, including range-extending EVs, plug-in hybrids, clean diesels, pure electrics, and flex-fuel vehicles running on cellulosic ethanol. But it's also shaping up to be the year when the domestic industry will have to deal with its greatest challenge ever.

In short, the "Big Three" are running out of money, and running out fast. At its present spending rate, General Motors will burn through almost all the cash it has in the next 6 quarters. Ford can hold out a little bit longer. And Chrysler? Well, who the hell knows what's going on there?

TELL THE FEDS TO FREEZE THE REGS!

Every day Chrysler LLC builds Euro-spec versions of the Chrysler 300 at its assembly plant in Canada, bolts a V6 diesel engine into most of them, and ships them off to Europe. That diesel 300 gets better fuel economy, over 30 mpg, than all the other vehicles in Chrysler's U.S. showrooms. But it's against the law for Chrysler to sell that car in America.

Right now Ford and General Motors are trying to figure out how to bring many of their fuel-efficient European models to the U.S. and manufacture them here. They'd love to do it immediately, but it will take them several years to modify, test and validate those designs before they can meet U.S. regulations. Until they do, it's illegal to sell those cars in America.

THE AMAZING SHRINKING CAR MARKET

As car sales continue to spiral downward, some product planners in the industry are beginning to ask the unthinkable: is the American car market going to shrink permanently?

They are starting to consider the possibility that the days of selling 17 million new vehicles every year are over, and that going forward the American auto market is going to be smaller.