Is the end nigh for the US auto industry. Will the big three turn into two?

That's the question raised by The Economist as it ponders the fate of GM, Ford and Chrysler. GM's stock has fallen to its lowest level in 50 years, the company is now only worth $5.9 billion and there's talk of a fire sale of its brands Buick and Pontiac. Ford is headed for another monster loss this year and Chrysler is denying rumors that it's about to go broke.

Their fate is a text book example of corporate myopia. The Detroit Three thought that Americans will continue to buy gas guzzlers forever. The ignored the warning signs and were caught out by fuel prices and the housing crisis. And as The Economist says, the signs aren't looking good.

"Just how bad are things for the Big Three? Their survival has been in doubt before. But two things are different this time. The first is that the car makers' finance arms used to bring in cash even in hard times. That is not happening now. More buyers are defaulting on their car loans, and the resale value of SUVs and Pickups has collapsed so catastrophically (see chart) that the finance offshoots are losing huge sums on vehicles returned after lease.

"The second change is that it seems increasingly unlikely that consumers will eventually shrug off the high price of fuel and return to their old buying habits, which means that Detroit's old business model is now obsolete."

According to one news report, former GM and Ford finance chief John Devine claims GM and Ford will be fine but as this Wharton discussion paper points out, the car makers simply found themselves behind the curve and unlike the Japanese and Europeans, they didn't see the changes coming.

The big question is whether Detroit will be able to develop develop truly competitive hybrid or hydrogen cars that are every bit as good as what's already on offer. But even then, it will be a game of catch-up football.