Detroit’s D-Day

Tuesday’s deadline looms large for the Big 3 automakers. Is this the moment of reckoning?

As you likely know, on Tuesday General Motors , Ford Motor and Chrysler will go before Congress a second time to ask for $25 billion in loans. Last month, the lawmakers rebuffed all three and told them to develop a plan for how they will use the money to stay in business.

Congress clearly wants proof that a federal bridge loan won’t be wasted. And the demands of Washington are being heard in Detroit. The Big 3 are weighing all their options. And we mean all of them.

Both GM and Ford are asking the Swedish government to help fund their Saab and Volvo brands, respectively. Meanwhile, reports surfaced on Monday that GM directors are willing to consider bankruptcy and Ford could sell its prestigious Volvo unit all together.

How Will It Play Out?

According to CNBC’s Phil LeBeau Congress will probably give the Big 3 the money needed to avoid bankruptcies. “With the economy already weakened and with the bailout of Citigroup earlier, Congressional leaders will feel compelled to approve money for the Big 3. Even critics of Detroit are sending signals that a bailout will eventually pass,” he says.

“Still, the CEOs of the Big 3 know they are going to be grilled about their "business plans". The biggest question: how confident can Congress be that $25 Billion is enough money to rescue Detroit’s auto makers?”

November Sales

To maker matters worse, automakers are scheduled to report November U.S. auto sales on Tuesday.

JPMorgan analyst Himanshu Patel said although the Detroit Three are reporting inventory levels at historic lows, auto sales have been so weak lately that the companies may still have to reduce them.

Will weak sales and a bleak outlook translate into widespread plant closings? LeBeau doesn’t think so. “Do they need to close at least 3 or 4, absolutely.” But it’s widely believed they will be at 80% - 90% capacity by 2011.”

Is There A Trade?

According to Jon Najarian, there was big options action in Ford on Monday. Meanwhile, Jeff Macke thinks the automakers are heading lower. Phil Lebeau adds that “anyone who thinks the stock is going higher from here is playing a very risky game.”

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