Toyota, Honda and Nissan targeted the SUV, mid size, luxury and truck markets, but they never forgot about the small car market. They continued to produce high quality vehicles for that segment and now they are ready to take advantage of the huge demand for small fuel efficient vehicles. A good example is Honda, which is going to boost their US bound production of the popular subcompact Fit from 60,000 units to 80,000 units for the 09 model.
I would hate to see any the US auto makers go under, but they have to make better decisions if they they expect to survive.
Here's one factor to consider. Unlike Toyota or Nissan GM has to generate $2500 for legacy costs (retirement pensions and healthcare) for every car they sell. Takes quite a bite out of the old profit margin doesn't it. Smaller cars have smaller profit margins, and I bet they simply cannot make money with mini-cars built in the US without defaulting on those obligations to their thousands of retirees.