The biggest companies in the US car industry, brought to the edge of bankruptcy by the economic turmoil, are considering extraordinary new plans to save themselves, including mergers that could throw tens of thousands of workers out of their jobs.
General Motors, the largest US car manufacturer, has talked in recent weeks with rivals Ford and Chrysler about combining forces with one or other of them, in the hope of finding the massive new cost savings that are required to make up for plunging sales.
Talks to take over Chrysler have stalled because of the panic on the markets in recent days, but are expected to resume quickly. Any deal would dramatically reshape the industry and the companies' native Detroit, the Motor City, whose slide has become emblematic of America's industrial decline.
The crisis in Detroit has become more acute with each day of the credit crunch, since all three major car makers are relying on the debt markets to tide them over amid spiralling losses – and investors doubt their ability to survive. Meanwhile, consumers who usually buy new cars using loans arranged at the showroom are finding that only those with the very highest credit ratings can get loans. Sales are at their worst level since the early Nineties.
General Motors is worth less than it was going into the Great Depression in 1929. Rival Ford halved in value last week. Shareholders are likely to be wiped out if the companies plunge into bankruptcy. Amid the tumult, it has emerged that GM has been holding talks with Cerberus Capital, the private equity firm which owns Chrysler, about taking over Detroit's No 3 car maker.
The two companies employ 130,000 people, mainly in Michigan, which has one of the worst rates of unemployment and declining house prices in the country. John McCain pulled his campaign staff from Michigan, ceding the state to Barack Obama, who is far ahead on the issue of the economy.
GM and Chrysler are haemorrhaging money, despite cutting 100,000 jobs since the start of the decade. GM lost $15.5bn in three months, according to its latest results, and has promised more production cuts across the world.
It has been trying to take on new debt, using buildings as collateral, but the debt markets are frozen. Ford has even less room for manoeuvre, after having already mortgaged most of its assets last year, including its blue oval logo.
Cerberus only bought Chrysler 18 months ago from the German firm Daimler. It had expected the company to return to profit next year after a deal with unions that offloaded billions of dollars in healthcare promises and cut new employees' wages. All the big US car makers pay billions per year in pension and healthcare benefits to retired employees from their heyday. In the past year, Toyota has overtaken GM as the world's best-selling car company.
The distress has been compounded by soaring petrol prices causing a slump in demand for SUVs and pick-up trucks. The credit crisis has proved the last straw. Cerberus is reportedly offering Chrysler for sale. GM would be best placed to extract cost savings by combining plants and axing competing models. "It will mean job cuts," said Tim Ghriskey of Solaris Asset Management.
Negotiations between GM and Chrysler come after talks between GM and Ford. GM is losing $1bn a month and although it has enough cash to survive the year, credit rating agencies have promised to downgrade its debt on fears for 2009 unless dramatic action is taken. Such a downgrade could kill the company. Ford, facing a similar downgrade, has been trying to sell its stake in Mazda, the Japanese car maker.