Q: What do you think of GM's prospects? The stock has gone from north of 40 a year ago to six and change. A: All of Detroit's prospects have diminished in the past month. The selling rate has declined rapidly, even though gasoline prices are down, and the mix hasn't shifted back in any meaningful way to big vehicles. Consumer confidence has kept people out of the showrooms, and now there is justifiable concern about the ability to finance customers and dealer inventories. So the outlook has dimmed for all three companies. The longer the credit markets remain frozen, the more damage will be done to businesses and consumers -- and the longer it will take for the auto industry to see a rebound in demand. The financial markets and stock prices will probably recover far sooner than the demand for automobiles.

Q: What is your read on Ford, whose shares fetch about $2? A: Ford and GM have a lot of the same characteristics. They are dependent on North America and on larger vehicles, and they have the same kinds of labor issues. But Ford does have the advantage of a much simpler structure. Ford added lots of brands by acquisition in the past 15 years, and it has been able to streamline its brand portfolio through divestitures. So Jaguar and Land Rover and Aston Martin are gone, Volvo is likely to go, and Ford's 33.4% stake in Mazda Motor [7261.Japan] will go. In a relatively short period, I think Ford can get down to Ford and Lincoln-Mercury. And because of their dealership infrastructure, they can really wind up being one channel, where the same store sells Ford, Lincoln and Mercury -- if Mercury survives. So Ford has an advantage in having a much simpler brand portfolio than GM does. Another advantage is that it still owns 100% of its captive finance company. It may not be able to hold on to that if credit conditions get worse. But if the company can get through this, that will be a huge competitive advantage. The main question for Ford is that if GM or Chrysler winds up in Chapter 11, will Ford be able to avoid that same fate? And if you look at airlines, railroads, textiles and the history of the steel industry, it probably won't. If one of the auto makers goes, they will all go.

Q: Turning to the overseas car makers, how do things look for Honda [HMC] and Toyota [TM]? Although their stocks have been hit, they've held up better than their U.S. counterparts. A: Honda and Toyota remain in a very advantageous position. Honda looks particularly good because it has almost no exposure to the traditional light-truck business like Toyota does. And Honda has remained very competitive in existing internal-combustion engine technology and every form of emerging alternative propulsion. Honda has a strong fuel-cell research program, a very strong hybrid program and a very strong electric program. It can even make diesel engines. So whichever way the world goes, this company is positioned to take advantage of that growth. Also, Honda has a global infrastructure and an excellent balance sheet, and it is probably the best-positioned auto company in the world right now.

Q: So Honda's at the top, followed by Toyota? A: Yes, Toyota has everything Honda has, but it has bigger exposure to North America and some exposure to the light-truck business, notably pickups. But it's a small percentage of total sales. So I would only distinguish Honda incrementally, because it doesn't have a pickup-truck business. But they are both in great shape, with almost debt-free balance sheets, very balanced global footprints and extremely strong R&D.

Q: What about the European car makers? A: The Europeans are better-positioned than the U.S. companies are, but they are not as well-positioned as the Asians. That's because the Europeans still are largely regional companies, not global companies, and they are still very dependent on exports from Europe, which has been difficult with exchange. Except for Daimler [DAI] and BMW [BMW.Germany], which have built fantastic global franchises, even the big companies like Volkswagen [VLKAY] don't do nearly as well outside Europe as they do inside Europe, whereas the Japanese companies have become very successful in markets outside Japan.

Q: What about the European car makers? A: The Europeans are better-positioned than the U.S. companies are, but they are not as well-positioned as the Asians. That's because the Europeans still are largely regional companies, not global companies, and they are still very dependent on exports from Europe, which has been difficult with exchange. Except for Daimler [DAI] and BMW [BMW.Germany], which have built fantastic global franchises, even the big companies like Volkswagen [VLKAY] don't do nearly as well outside Europe as they do inside Europe, whereas the Japanese companies have become very successful in markets outside Japan.

There are a couple of companies that are well positioned to benefit from higher gas prices and the move to small cars, such as Peugeot [PEUGY], Fiat [FIATY] and Renault [RNSDF]. They have great engine and diesel technology, but they need distribution. And they need to build their brand names overseas. For those reasons, they are potentially interesting partners for the GMs, Fords and Chryslers of the world. But they are reluctant to take operating risk now to buy or partner with one of these companies.

There are a couple of companies that are well positioned to benefit from higher gas prices and the move to small cars, such as Peugeot [PEUGY], Fiat [FIATY] and Renault [RNSDF]. They have great engine and diesel technology, but they need distribution. And they need to build their brand names overseas. For those reasons, they are potentially interesting partners for the GMs, Fords and Chryslers of the world. But they are reluctant to take operating risk now to buy or partner with one of these companies.