Have Detroit's Bailout Notions Been Quashed?

It's as if everything's happening at once these days. For instance, it was just a day after Treasury Secretary Paulson's nose-thumbing at Lehman Brothers that General Motors (NYSE:GM) unveiled its new Volt. But the car's ultimate development may depend on how effectively Mr. Paulson has hidden the taxpayer life-preservers on which a host of sliding companies had come to depend.

And with the AIG deal, maybe the last of those life preservers have been used.

What does the Volt really have to do with Lehman and AIG? Simply this: The big three automakers -- GM, Ford (NYSE:F), and Chrysler -- have been lined up at the giveaway window, seeking government backing in the form of low-interest loans as they attempt to quick-step from their gas-guzzler mentality to an epiphany that suddenly has them paying attention to fuel efficiency. But if Detroit's really looking for a public handout, Mr. Paulson may have effectively told them "nyet."

GM officially rolled out its battery-powered plug-in Volt prototype yesterday. The car, which is still in development but is scheduled to go on sale in late 2010, is purported to be able to go about 40 miles on its electric battery power. Not bad for mostly city driving. Once the battery has lost its oomph, a four-cylinder engine will swing into action, recharging the battery and running the car.

But while all this sounds terrific, Japan -- through public-private partnerships --thus far is outstripping the U.S. in the development and manufacture of lithium-ion batteries that can power both today's hybrids and the next generation of plug-ins. This includes companies like Hitachi (NYSE:HIT) and Sanyo Electric. There's still some kinks to be worked out, as illustrated by Toyota (NYSE:TM) running short of batteries earlier this year for its hot-selling Prius hybrid. If the Japanese solve those kinks, some here are concerned that we'll exchange foreign oil dependence for foreign battery dependence.

One response has been for the U.S. Advanced Battery Consortium with the Department of Energy to award Johnson Controls (NYSE:JCI) $8.2 million for the development of lithium-ion batteries. The USABC is made up of Ford, Chrysler, and GM. Hmm. At the same time, the U.S. car companies have been seeking at least $25 billion in government loans, at least in part for battery research and manufacturing.

All this leaves me with three questions:

• Will the Detroit three be granted their requested loans?
• If not, will they be able to survive until they can crank out a meaningful number of plug-ins and other fuel-efficient vehicles?
• And will they be able to rapidly reduce the Japanese battery advantage?

Pardon me if I'm skeptical on all three fronts.

Motley Fool CAPS players have decorated Toyota with four stars, versus one each for GM and Ford. Which of these companies do you expect to be outperformers?

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