Running on Empty

I am driving a dinosaur this week. No, I'm not Fred Flintstone working in the rock quarry. Rather, I'm test-driving a Ford F-150, Harley Davidson edition pickup truck. It's got a big supercharged V8 engine that rumbles to life like a Harley hog. It's got a cool two-tone copper and black paint job, leather captains chairs embossed with the Harley logo, satellite navigation, moon-roof and power everything. This fully loaded ride has a sticker price of $50,035 and it's wicked fun to drive. But it also gets 12.8 miles per gallon and costs $123 to fill up. It's just the sort of big rig suburban cowboys couldn't get enough of back when gas was cheaper than bottled water (as they used to say in Detroit). But these days, this model is going nowhere. And neither is Detroit.

The complete collapse of the pickup truck and SUV market is causing a calamity in the Motor City. Auto sales drove off a cliff in June, falling to a 15-year-low. GM stock fell below $10 for the first time since 1954, reaching its lowest level since Eisenhower was in the White House and tailfins were the latest rage. Ford's stock is nearly as cheap as a gallon of gas. Factories are closing and workers are being cashiered at a breath-taking pace. And now the B-word—bankruptcy—is creating panic in Detroit. First, Chrysler fended off rumors last week that it was going bankrupt or about to be sold by its owner Cerberus Capital Management. Then, GM's stock tanked Wednesday after Merrill Lynch auto analyst John Murphy wrote "bankruptcy is not impossible if the market continues to deteriorate."

So is Detroit headed for the end of the road? Not yet, but there are certainly dangerous curves ahead. The Detroit Three are burning through billions in a race to overhaul their lineups from guzzlers to sippers. (Some analysts estimate GM is chewing through $1 billion in cash a month). And profits are nowhere in sight, as many of the new fuel friendly models are two years away or more. Ford just backed off a prediction that it would be back in the black by 2009 and now, like GM, won't say when it expects to make money again. Chrysler, which is now a private company that doesn't report profits, is seen as in the worst shape, since its is the most dependent on trucks, SUVs and minivans, and doesn't have the profitable overseas operations of its crosstown rivals. Those bleeding balance sheets—along with an anemic economy—are fueling the bankruptcy talk. "If nothing changes—oil prices stay high, the capital markets remain seized and consumers remain depressed—then Chapter 11 might be the only way out for all three companies," says veteran auto analyst John Casesa.

But that still doesn't make bankruptcy inevitable for Detroit. Far from it, in fact. Sure, Chapter 11 might allow them to get their financial house in order, while euthanizing dogs like GM's Pontiac or Ford's Mercury and paring their bloated dealer network. But the consequences of bankruptcy are more dire for a carmaker than for an airline or steel company. Consumers, analysts say, would steer clear of a bankrupt automaker, fearing there would be no parts or dealers to service their cars down the road. "Would you buy a Chevy from a bankrupt GM?" says David Healy, auto analyst with Burnham Securities. "It would do a lot of damage to their marketability."

That doesn't mean Detroit won't reorganize. It's doing that already, having shed a quarter-million workers and 15 points of market share this decade. It just won't seek the assistance of a bankruptcy court to oversee its overhaul. Instead, Detroit will either re-engineer itself or get help from the outside. Here are some potential scenarios:

The savior scenario. A big money player willing to gamble on a Motown turnaround could team up with a healthy automaker to ride to the rescue of a Detroit car company. The most obvious combo is Vegas billionaire Kirk Kerkorian, who has amassed 6.5 percent of Ford's stock this year, and Renault-Nissan CEO Carlos Ghosn. Kerkorian already admires Ghosn for his legendary turnaround of Nissan. Kerkorian attempted to engineer an alliance with Ghosn and GM in 2006 that failed. Now Kerkorian is offering his help, and a possible cash infusion, to Ford. Might he again attempt to seek the services of Ghosn? Casesa sees that as a possibility, but it would require the Ford family to give up their iron grip on the company that old Henry founded 105 years ago. And that's not easy.