General Motors and Chrysler have held discussions over the past month to merge the two companies, the New York Times and the Wall Street Journal reported late Friday evening.

The Journal says the deal would likely involve a swap of Chrysler assets held by Cerberus Capital Management, for the remainder of GM's finance arm GMAC that Cerberus does not already hold--49 percent of GMAC's shares.

The possibility of a merger is on hold because of the stock market's gyrations, the papers add, but a deal could be rejoined quickly if the markets stabilize.

A merger between GM and Chrysler would lead to radical, and permanent, changes in the U.S. automotive landscape. The companies have more than 100 factories and 11 brands, not to mention thousands of dealers, that would have to be rationalized to make money out of the merger. Other sources estimate GM could net $10 billion in savings out of a potential merger--but that would only happen after drastic cuts to the number of models the companies make, the number of plants they operate and the number of people they employ.

Both sources suggest Cerberus would end up taking an unnamed share in the combined GM-Chrysler.

The Times says a deal between the two is "50-50" and could take weeks to finalize. This week, GM has repeatedly denied it's considering a bankruptcy filing as its stock shares have been slammed, falling from $43 a share as a recent high to $4 a share this week.

As for Chrysler, it's been a continual source of speculation this year, as Cerberus--which owns an 80-percent stake in the company--faces another year of large sales drops. The Times reports Chrysler's parent has been hoarding cash that would otherwise have been spent developing new models, making it more certain that some kind of deal must be struck to give Chrysler a shot at survival. At the recent Paris auto show, sources suggested that Cerberus' recent moves to acquire the rest of Chrysler from Daimler AG would make it easier to package the company for a quick fire sale--something it's unable to do if it does not own the company outright.

Chrysler has also been exploring deeper alliances with Renault/Nissan. It has engaged that alliance to build a new small car for Chrysler--basically a rebadged Nissan Versa--while Chrysler provides Nissan with a next-generation Titan pickup spun from its Ram truck. The synergies from a Chrysler-Renault/Nissan deal, on paper, are far more uncomplicated than with GM. Chrysler's expertise in trucks, minivans and SUVs would have little overlap with Nissan's luxury, performance and small cars.

However, pressing financial concerns and the U.S. political season, not to mention the common Cerberus ties, could make a GM-Chrysler deal far more palatable. A merger between the companies may sail through federal approval, since GM and Chrysler's market shares are hitting historic lows. GM controls 22 percent of the U.S. market, while Chrysler holds 11 percent. Rival Ford Motor Company has hovered around 13 to 15 percent in 2008, with a downward trend. A deal would also ensure GM remains the world's largest automaker, outgunning Toyota and controlling 35 percent of the U.S. market for new light vehicles.

Ford Motor Company's chief financial officer, Don Leclair, is retiring as the automaker faces the bleakest times since at least the late 1970s.

Leclair worked for the second-largest domestic automaker for 32 years, joining in 1976. He has served as the CFO since 2003.

Leclair, 56, has the unusual distinction of being replaced by someone older than he--59-year-old Lewis Booth. Booth is associated with successful turnarounds at Ford of Europe and at Mazda.

Ford stock is trading at a little over $2 a share as the financial markets buffet auto stocks, and as the market reels from the impact of the gutting and reshaping of the banking and investment industries.

Just when we thought the grim times in Detroit couldn't darken any more, Thursday happened.

GM and Ford stocks fell to dramatic, swooning lows right along with the Dow, freefalling into the 8,600 range for the first time in five years. GM shares are sitting at levels not seen since the Korean War. Ford is essentially a penny stock.

Inside the industry, it's turning into a bad season of Survivor (and who watches Survivor anymore, anyway?). It's about to get worse. The reports are dire this morning, with the possibility of another 500-point drop in the Dow. Geraldo Rivera's on morning TV, talking about how GM and Ford are trading at $4 and $2 a share, and the $25 billion in loans might be used just to "keep the lights on."

When Geraldo shows up in your backstory, it's like Jim Cantore showing up at your oceanfront property. Not good.

But is it a game-ending scenario? Yesterday, I talked with CBS Marketwatch, which asked pointedly if GM was in danger of going bankrupt. With the cash on hand, GM says it will weather the rest of the year, and they know their wallet better than the press. I hesitate saying anything like the B-word because there are more levers yet to pull at both of the publicly-owned domestics.

But like John McCain's campaign, the options are getting fewer and more esoteric. GM is trying to unload its headquarters to the notoriously well-funded city of Detroit. That's how extreme the solutions have become. Ford already mortgaged everything, including the blue-oval logo--and its best new vehicle, the 2009 Ford Flex, isn't selling well.

If there were any signs of recovery, the domestics might be able to muddle through this year and hedge their bets on the federal $25 billion in loans, which come with plenty of strings. The problem is, analysts are predicting a bloodbath next year. Car sales in 2009 could hit a three-decade low of 13.2 million vehicles. Off recent highs of nearly 17 million car sales, that's like wiping GM, Toyota and Ford off the sales charts entirely.

We're in freefall, and there's not even a glint of a recovery. The entire U.S. auto industry will be battling simply to survive. They'll have to do it for 18 to 24 months. And some of them won't make it, the headwinds are just too strong.

Think of the postwar implosion of car brands after World War II, when the market went from dozens of brands to a handful. Could we go from three U.S. makers to one--or none?

What's your take on the survivors? Who's going to make it through this Marianas trench?

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Twitching in sympathetic agony with the Dow Jones Industrial, auto sales estimates for the remainder of 2008 and 2009 just keep getting uglier. J.D. Power and Associates recently rang in with a projected 13.6 million total new light-vehicle sales at the close of '08, representing a 16% drop from 2007's 16.1 million units.

Of new-vehicle retail sales for 2008 (those not including fleet sales), the research firm projects 10.8 million total, two million units below new-vehicle retail sales in 2007. They also completed a "downward revision" of their projections for 2009 new-vehicle retail sales, which they predict will be 10.6 million units altogether. Economists call this "negative growth." Indeed.

J.D. Power attributes 2/3rds of the decline in retail sales to customers who have decided or been forced to delay a new vehicle purchase. The remaining third is due to a decrease in vehicle leases. Fleet sales are also expected to suffer, falling to a projected 2.8 million by the close of the year, compared with 3.3 million in 2007.

Said Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates, "the additional decline in expected vehicle sales is a function of growing concerns around availability of credit and leasing, declines in vehicle equity and general economic stress."

Schuster concluded the bad news with a bit of a harbinger for the months to come as our country muddles into this deepening recession economic downturn: "Any truly pronounced recovery appears to be more than 18 months away."--Colin Mathews

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Your City's Finest will be driving around in stealthy, biodiesel-burning, custom-tailored RoboCop mean machines if Carbon Motors has anything to say about the future of Police service vehicles. Carbon is critical of current police cars that it feels are little more than cobbled-together civilian sedans full of safety and performance compromises that hamper Police' ability to effectively do their job. To address that criticism, the company has developed the code-named 'E7' vehicle "by law enforcement, for law enforcement."

Carbon Motors will unveil the E7 on October 14 during the 2008 Pure Justice Tour (no, you can't get tickets from ticketmaster), which starts in Chicago and includes San Diego, where the 115th annual International Association of Chiefs of Police (IACP) meeting will occur. Carbon claims that the E7 (to be named eventually by the law enforcement community) "represents the next generation of law enforcement technology" and states that it is the first vehicle ever designed solely for law enforcement purposes.

From the specs given on Carbon Motors' Web Site, The E7 sounds like a European limo with its 122-inch wheelbase, relatively svelte 4,000-lb. curb weight courtesy of an aluminum spaceframe, four-wheel independent suspension, rear-wheel drive, 18" wheels, and 50/50 weight distribution. Motivating all that metal, and the perps inside it, are a 3.0-liter turbodiesel (Six cylinders? Five?) and a six-speed automatic that Carbon claims are good for 300 hp, 420 lb-ft, 0-60 in 6.5, and combined fuel economy of around 28-30 mpg. Bringing two seemingly disparate groups together - the police and the environmentalists - the E7 even lists biodiesel as a recommended fuel. The last bit of these too-good-to-be-true specs are an expected 250,000-mile service life.

The litany of impressive crash resistance figures, emergency lights and "bass siren," nightvision, 360-degree exterior surveillance, integrated shotgun mounts, and hoseable rear passenger compartment is too numerous to list here. Carbon claims the pricing, to be announced in a few months, will be competitive with current law enforcement vehicles sold in the U.S.

Looking very European (Saab/Citroen/Alfa/Renault) in the details, and quite a bit previous-gen Subaru WRX in its chunky, muscular profile, what we can see of the E7 reveals short overhangs on a long wheelbase, taut angularity, squinting multi-element headlights, an elongated passenger compartment with suicide (Carbon calls them "coach") rear doors, and not an ounce of the body fat that has long enveloped full-frame U.S. police cruisers.

The E7 and the Pure Justice Tour will also travel through Indianapolis, Columbus, San Jose, San Francisco, Greenville, and Jacksonville on its way to Tampa, its final stop on the tour. For your own sneak peak of this urban warrior, to the tune of some righteous heavy metal, click on over to "Ours is Real" at youtube.--Colin Mathews