This week, Congress returns to the question of what to do with the domestic auto industry, Detroit’s humbled Big Three. And the options range from awful to unthinkable.

Yesterday we got a reading of auto sales in November. The story was extremely bad. Continuing the trend from October, sales were down anywhere from a third to a half, across all the manufacturers who sell in North America.

Put simply, the US consumer, whose purchases comprise over 70% of GDP, has gone on strike. In the case of the automotive sector, opinion is split over the exact reason. It could be mostly because finance for new-car purchases has become far harder to get, as the credit crisis continues in full force.

Or, much more ominously, it could be because US consumers have simply decided to step down their purchasing levels, for whatever reason. Possibilities include: uncertainty about their jobs, desire to increase personal savings, concern about their ability to afford necessities, or a lack of confidence about the economy in general.

One of the possibilities is not dissatisfaction with the product offerings from the Detroit automakers. The two-month collapse in sales hit the Japanese automakers just as hard.

(It’s an untold story that companies like the vaunted Toyota Motor Company are in deep financial trouble too. In addition to falling sales, the Japanese are also impacted by the recent strength in the yen. Toyota’s debt securities were recently downgraded, which tremendously increases their cost of doing business.)

It’s been a general rule in US postwar recessions, that final demand continues even as industrial production falls and unemployment rises. The consumer has led us out of many a recession. But if the current one turns out to be characterized by weak consumer demand, there’s no clear blueprint for a recovery.

Now put this together with the self-made problems faced by the Big Three.

Led by General Motors, the Detroit automakers have cost structures that are unsuited to current times. They pay far too much for labor and benefits. They have the capacity to make far more vehicles than the market needs, especially considering the effective competition from non-domestic producers. They have far too many dealers that are carefully protected by a welter of confusing state laws.

And their cost of capital is essentially infinite, because neither they nor their financing units can sell stock, debt or commercial paper, and haven’t been able to for months.

But the position that General Motors, Ford Motor and Chrysler LLC find themselves in, is something many people have seen coming, for decades now. They didn’t make necessary and painful adjustments when they had the chance.

And now they’re stuck in a very tiny little box, with essentially no options.

That’s where you, the taxpayer, come in.

Let me make a very simple, bald statement: The domestic auto industry cannot survive without a huge amount of taxpayer money.

Let me make a few more bald statements. The taxpayer money that will go into the auto industry will NOT be used to make the industry healthy again. Instead, it will be used to wind the industry down, and pay off the people who will variously go out of business or become unemployed.

Are you feeling better about this yet?

Let’s see if I can help. As I’ve been explaining to you for nearly a month, GM faces a cash shortage. The continuing poor sales in November suggest that they are very likely to be all the way out of cash by anywhere from Christmastime to late January.

What does “out of cash” mean? It means they won’t be able to sign paychecks, or pay their dealers or their suppliers. Yes, it’s that bad.

Chrysler’s situation appears to be almost as bad. Ford Motor does not face an immediate cash squeeze.

So here’s what Congress is looking at. They have to answer to a public that’s still simmering angrily over the $700 billion TARP bailout. They have the spectacle of wealthy CEOs flying private jets to Washington to plead poverty. And they may need to do something immediately, in the current Congress.

Part of the dilemma for Congress is that they really don’t want to act twice on behalf of Detroit. It seemed quite likely two weeks ago that they would pass a near-term lifeline to the Big Three, with Republicans proposing to redirect $25 billion to working capital.

This money had already been allocated for the Big Three to spend on green-technology research. But House Democrats were dead-set against using it for such frivolities as mere survival. Senate Majority Leader Harry Reid wouldn’t even allow a vote on the idea.

So now, Congress faces a tougher set of choices, in a political atmosphere that has darkened considerably for Detroit.

They really don’t want to pass a small bridge loan with few strings attached now, and then come back in January for another big commitment. They’d rather just solve the problem now and get it over with.

To listen to House Speaker Pelosi, Congress would dearly love some kind of public contrition by the Big Three, with a solemn promise to be good little boys and girls in the future. Resignations of the current CEOs would be a big plus, and some happy talk about partnership and shared sacrifice from the UAW would be the icing on the cake.

In return for all of that PR-friendly nonsense, Congress would immediately give something upwards of $30 billion of taxpayer funds. Then they would all have a press conference, smile dazzlingly into the cameras, and announce that America’s domestic automakers are back to health.

The problem is that, instead of being back to health, they’ll be back to Capitol Hill next year for more taxpayer money. And Congress would rather not have to do this all over again.

The options for General Motors and Chrysler are very, very bad if they don’t get a lifeline this month. GM in particular simply can’t start a process of liquidation. There are far too many people, far too many companies, and far too many state and local governments that would face disaster if that happened.

Some kind of deus ex machina that I can’t predict will appear if there is no bridge loan from Congress. Possibly we’d see the emergency appointment of a Federal receiver or bankruptcy trustee with the power to dispense funds from the TARP program, to keep the upper Midwest from having a very unpleasant Christmas.

And in the end, the question we all need to answer is: at what price should we have a domestic auto industry?

In a simple, laissez-faire world, GM and Chrysler would go out of business. Ford Motor would pick up some of the pieces, possibly with some new private capital. There would be a lot of distress, and a big downward re-set of expectations by organized labor.

It would be like a hurricane passing through. Lots of damage, but a fairly quick recovery.

But in our world, the watchword is “too big to fail.” Are we prepared to spend $50 billion at the very least (more likely between $100 and $200 billion), to keep afloat a set of failed corporations, just because we like their logos?

Because make no mistake, the domestic auto industry will shrink, either now or later. It has far too much production capacity, it pays its workers far too much, and it has far too many dealers.

The temptation will be to put in a lot of money, so Detroit can slide along on their promises that everything will be back to full-normal by 2010. That’s what we shouldn’t do.

Instead, we need to force these companies, their dealers, and the UAW to restructure painfully, right now. The longer we draw the process out, the more it will cost.

-Francis Cianfrocca