The domestic automakers were in the midst of turnaround efforts when the U.S. auto market took a sudden nosedive last spring as gas prices surged. Demand plunged further as the country's credit system faltered. Last week, auto consulting firm J.D. Power and Associates cut its 2008 and 2009 forecasts again. It now predicts U.S. sales will sink to 13.6 million cars and trucks this year and to 13.2 million in 2009 -- their lowest level since 1992. The prospect of an even weaker market next year has revived concerns that the U.S. automakers may not have enough cash to get through a prolonged downturn. Those fears were reflected in the tumbling share prices of GM and Ford last week. Their combined market capitalization -- the total value of their outstanding shares -- is now less than $8 billion. 'As conditions get increasingly difficult, I've always felt it was a possibility these companies could combine,' said Casesa, a former Wall Street analyst. 'In a distressed situation, the idea is that out of three suffering companies, one viable company could be created,' he said. GM, Cerberus talkFor the past month, GM and Cerberus have been discussing a potentially far-reaching deal that would combine GM and Chrysler's automotive operations and leave Cerberus, a private equity firm, with the GMAC and Chrysler Financial Services lending operations, according to sources familiar with the negotiations. The discussions appear to confirm mounting speculation that Cerberus is looking for a way out of the ravaged U.S. auto sector. 'They didn't know what they were getting into -- nobody did at the time,' said David Healy, an auto analyst at Burnham Securities. 'The situation in the industry has been calamitous.' Analysts and industry executives say they see the advantages of such a deal for Cerberus, but question how GM would benefit from a merger of its automotive operations with those of Chrysler. Such a deal would compound GM's problem of having more brands and dealers than it can sustain, said Maryann Keller, a longtime analyst and head of Maryann Keller & Associates in Stamford, Conn. 'GM is in trouble having eight brands and too many dealers, why would they want three more brands and 3,000 more dealers?' She said the deal also failed to address GM's most pressing problem: a shortage of cash: It is burning through $1 billion a month. And the outlook has worsened since GM announced a plan in July to save cash by cutting costs by $10 billion by the end of 2009 and raising $5 billion through asset sales and borrowing. But some industry experts believe GM is trying to refashion the industrial landscape through a variety of combinations. '(GM) feels this is an opportunity across the industry to do some things that normally would be very difficult to do,' said David Cole, chairman of the Center for Automotive Research in Ann Arbor. He said the automaker's ultimate objective may be to effect an even faster reduction in the U.S. auto industry's production capacity than the pace set by the current turnaround plans agreed to by the United Auto Workers union. Last year, when Daimler put Chrysler up for sale, GM submitted bids twice. GM and FordGM put out feelers toward its crosstown rival Ford, too, this past summer, people familiar with the situation said Saturday. They said GM CEO Rick Wagoner and Ford CEO Alan Mulally held direct talks which did not, however, evolve into actual negotiations. 'There were never in-depth, substantive discussions,' one of the sources told The Detroit News on condition of anonymity. 'It was more an expression of interest, as in, 'Do you want to talk?'' But Ford pulled away, with Mulally convinced that the best way to face the future was to become a leaner company with fewer dealers and brands and more tightly integrated global operations. Mulally has repeatedly pointed to Japan's Toyota Motor Corp. as his model for success, noting that it competes successfully around the world with one major brand. But even Toyota is struggling in the face of collapsing U.S. demand and tumbling sales in many overseas markets as well. According to the Nikkei business daily, its operating profit for the year ending next March 31 is likely to be down 40 percent. Compared with GM, Ford has felt more secure from a financial standpoint after securing $23 billion in credit in late 2006 by putting up most of its U.S. assets as collateral. But in a rapidly deteriorating economic climate, Ford is now mulling the sale of a choice asset -- its controlling stake in Mazda Motor Corp., according to sources familiar with the situation. Ford meanwhile has put on hold any plans to sell its Volvo unit because the Swedish carmaker is losing money. Ford recently tripled the job cuts planned at Volvo as part of an effort to fix the company before selling it. 'We're looking at a lot of different things with liquidity in mind,' said one person close to the situation. 'But things are changing week to week, and I don't know if anything is going to happen or not.' A chilly climateAnalysts say automakers are likely to step up cooperative deals -- such as the Ford-GM transmission venture, and the GM-Chrysler hybrid development project -- to share the huge costs of producing cleaner vehicles and meeting tough mileage standards. But with the banking system in turmoil, and the U.S. financial crisis spreading to other countries, some analysts and industry executives say it may be harder now to pull off major deals. Keller noted that most reports about the GM-Cerberus talks suggested they began a month ago, before the latest global stock market turmoil. 'It sounds like they started before all this happened,' she said. 'I can't imagine how they'd structure it (a deal) now.' Carlos Ghosn, the CEO of both Renault SA and Nissan Motor Co. who has sought to add a North American partner to the Renault-Nissan alliance, said last week that the turmoil in the financial markets made merger and acquisition activity less likely, not more. 'I think that initiatives, in terms of alliances, are frozen for a very simple reason: Everyone is scared of credit crunch and cash problems,' he told reporters at the Paris auto show. But that's not likely to put a stop to all the conversations. An executive at one of the U.S. automakers who spoke on condition of anonymity said the talks taking place 'suggest that in this environment, any and all things are being looked at.' You can reach Christine Tierney at (313) 222-1463 or ctierneydteom.