The last few months have brought the collapse of some of the titans of the U.S. investment banking industry, sending shock waves through Wall Street and beyond. Now some are asking whether automobiles, another iconic American industry, will see its leaders suffer a similar fate.
In other words, will General Motors, Chrysler and Ford survive?
"Really, nobody knows the answer to that," said Aaron Bragman, a research analyst for the economic analysis firm Global Insight in Detroit.
"They've got some serious issues, [and] a lot of it is derived from the poor state of the American economy," he said.
Speculation about the future of the country's two top automakers has reached a fever pitch in recent days. GM is reportedly in preliminary talks about a possible merger with Chrysler, the nation's third-biggest car company. According to The New York Times, GM had initially approached Ford about a merger before setting its sights on Chrysler.
GM, Ford and Chrysler have all issued statements declining to comment on any talks.
"Discussions go on all the time between automakers on a wide variety of issues," GM spokesman Mike Meyerand said in an e-mail to ABCNews.com
News about possible merger talks first surfaced late Friday, just hours after the share prices of both GM and Ford plunged after an announcement by the ratings agency Standard and Poor's. The agency said it was reviewing the companies for a possible downgrade in their credit ratings.
Its decisions, S&P said, were partly based on "rapidly weakening" global auto markets and challenging capital market conditions.
Experts say part of what's hurting auto sales today is the credit crunch -- consumers simply can't get the loans they need to purchase cars.
"The personal finance crisis we're having is keeping people out of the market entirely," Bragman said.
Automakers worldwide have seen this year's economic turmoil batter their profits, but Ford and GM have taken heavier hits than their top foreign competitors.
While Japan's Toyota, which sold the most cars in the world last year, and Germany's Volkswagen -- the world's No. 3 auto seller -- managed to stay in the black, Ford posted its worst-ever quarterly performance in July, with an $8.67 billion loss, and GM reported a stunning $15.5 billion second-quarter loss.
GM and Ford -- which were second and forth, respectively, in world auto sales last year -- have defended their health. GM recently dismissed speculation that it was headed toward bankruptcy and both companies touted recently announced measures, including production cuts and the development of new models, designed to improve their financial health.
"If we work together to deliver the plan and create an exciting viable Ford delivering profitable growth for all, the external measures will take care of themselves," Ford said.
Richard A. D'Aveni, a professor of strategic management at the Tuck School of Business at Dartmouth College, said he's not buying either company's story. Both, he said, should seek bankruptcy protection.
America's hegemony in the world auto industry, he said, "ended a long time ago."
Beyond the Economy: America's Auto Woes
Experts say that it's not just current economic conditions that are hurting America's two auto giants.
Bragman said that American carmakers have always been dominant in the production of large trucks. But as gas prices rose, GM and Ford saw one of their key advantages fade, he said.
Sales even declined for the Ford 150, which, until last year, had been America's top-selling automobile for 30 years running.
"Fuel prices were spiking so high that people were abandoning trucks in droves," Bragman said. "Those people who didn't absolutely need to have a truck got rid of it or didn't buy a new one when they headed back to the dealer."
Meyerand conceded that while demand for trucks is down, GM continues to benefit from truck sales.
"There is a market for those vehicles, and they are selling," he said.
Ford declined to comment for this story.
D'Aveni said American automakers have also been hampered by labor contracts that have kept the companies from saving money. The contracts prevented the car companies from shifting more operations to markets where labor is cheaper, he said.
"They should be making the cars wherever it's economically rational and it's not economically rational to make all your cars in the U.S.," D'Aveni said.
He also said that GM, specifically, was hamstrung by "redundancies" in its products. Different GM brands, he said, produce similar vehicles -- from sports cars to family sedans. The redundancies have continued, he said, because different GM dealers -- from Chevrolet to Buick -- demand variety in their products and don't want to spend money to add different GM brands to their lineups.
"The Chevy dealer doesn't care that you have a Buick family sedan," D'Aveni said. "The Chevy dealer says give me a [Chevy] family sedan."
The simplest way for GM to resolve its dealer problem, he said, would be to file for bankruptcy and build new relationships with its dealers
It's a solution GM says it won't consider because the consequences, Meyerand said, aren't worth it.
"Nobody wants to buy something from a bankrupt company," he said, "so why would you even consider doing that?"
And, Meyerand said, GM's global production is more flexible than critics perceive. Thanks to renegotiated union contracts, he said, the company is able to make vehicles more cheaply both in the United States and abroad.
A GM-Chrysler Merger: A Solution or Just Senseless?
Unlike GM and Ford, Chrysler's financial situation is unknown to analysts -- the private equity firm Cerberus Capital Management purchased a majority stake in the automaker last year. As a result, Chrysler is no longer publicly traded, and its books aren't open to public scrutiny.
But analysts say they don't need to see Chrysler's books to know that the automaker has its own problems, including a lack of fuel-efficient cars and overall poor ratings on the quality of its vehicles.
And, like other automakers, Chrysler's sales are down.
"I think that the market shift took Cerberus by surprise," Bragman said. "Things have gotten a lot worse than they had expected in terms of [Chrysler's] profitability, in terms of income and revenue."
Bragman said that it could be in Cerberus' interest to sell Chrysler to GM, but that doesn't mean that a merger of Chrysler and GM would actually be a good idea.
"My general theory about the merger -- if you take two sinking ships and put them together, all you've created is a Titanic," said D'Aveni.
D'Aveni and Bragman agree that the problems suffered by each automaker won't be resolved through a merger of the two.
Bragman said that while GM would stand to gain market share by merging with Chrysler, the new combined company would also lose money because it would have similar models, like the Dodge Ram and the Chevy Silverado, competing against each other for buyers.
D'Aveni said that the historical strife between the two companies also doesn't help the prospects for a successful combination.
"You've got to manage the culture of two enemies that have hated each other for decades," he said.
But Van Conway, the president of the turnaround firm Conway, McKenzie and Dunleavy, said he wasn't ruling out the possibility that a merger could help GM.
The new, combined company, he said, could save a substantial amount of money by eliminating overlapping positions.
"That's why two losing companies typically merge, not because of revenue. They merge because of the reduction in overhead costs," Conway said.
In determining whether a merger would work, he said, the automakers would have to weigh those savings against other costs, including severance for laid-off employees. The companies, he said, might also not want to deal with the diversion the merger would cause for top management at an already challenging time.
Ford and GM: Still Hope?
Merger or not, there still appears to be a least some hope for U.S. automakers.
Bragman said that when it comes to fuel-efficient and attractive passenger cars, both GM and Ford are catching up to their foreign competition.
Sales for GM's 2008 Ford Malibu, for instance, "are through the roof," thanks to a more stylish design and better fuel economy, he said.
Bragman said the companies are also working to improve their auto plants so that they can make different kinds of vehicles on the same production lines, much like Toyota and other foreign automakers that have newer facilities than GM's and Ford's.
For now, he said, the companies have to contend with a more immediate concern: whether they'll have enough cash on hand to survive the current financial crisis. Within the next two years, he said, both companies could face insolvency.
"It's a vicious cycle," he said. "They need to be able to raise more cash in order to operate, but their ability to raise that cash keeps getting downgraded by Wall Street."
Congress passed legislation earlier this month to provide U.S. automakers $25 billion in low-cost loans to upgrade older production facilities, a move that Bragman said represents just "a drop in the bucket."
GM and Ford, meanwhile, each say they're taking their own steps to return to profitability. Both automakers have touted their new fuel-efficient models and are seeking to cut costs.
In June, GM announced that it would close manufacturing plants in Moraine, Ohio; Janesville, Wis.; Oshawa, Ontario; and Toluca, Mexico. ABC News affiliate WZZM reported Monday that the company is also closing a stamping plant in Wyoming, Mich.
Meyerand said GM is trying to raise money by selling its closed facilities as well as its Hummer brand.
Ford has said it would convert three of its North American truck and sport utility vehicle plants to small-car production. Ford also offered buyouts to 54,000 hourly workers earlier this year and laid off hundreds of white-collar workers during the summer.
An Auto Bailout?
If the efforts don't work, and if the companies look likely to fall into bankruptcy, Bragman said he expected the government would step in with some sort of assistance.
A "massive number" of American jobs are dependent on the country's auto industry, he said.
To let the companies go under, Bragman said, "would be far more expensive than to try to help" with a bailout.
There is a precedent for a government auto bailout. In 1980, the federal government backed $1.5 billion in loans for Chrysler, helping the company, which was the world's No. 9 auto seller last year, avoid bankruptcy.
But repeating the Chrysler bailout would be a bad idea, said Barry L. Ritholtz, CEO of Fusion IQ, an institutional research firm, and the author of "Bailout Nation: How Easy Money Corrupted Wall Street and Shook the World Economy."
It was the Chrysler bailout, he said, that cemented the expensive union contracts that would cripple American automakers later on.
"What normally happens when an industry has a horrific contract … eventually they collapse. And that collapse forces the whole industry to realign," Ritholz said.
The Chrysler collapse, he said, never happened, "so instead, here it is, 30 years later and GM is carrying a $3,000, $4,000 cost on every car that Toyota and Honda doesn't have."
With reports from ABC News' Scott Mayerowitz and Rana Senol.