Bid to rescue ailing US automakers collapses

[Naveed Yaseen]

WASHINGTON: A plan worth billions to rescue ailing US automakers collapsed in the US Senate, raising the prospect on Friday of imminent bankruptcy for GM and Chrysler with millions of jobs at stake.

Last-ditch talks on the $14 billion package, backed by Democrats and the White House, broke down late on Thursday after Senate Republicans insisted that union wages be brought swiftly in line with those paid by foreign automakers.

“I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight,” Democratic Senate Majority Leader Harry Reid said. News of the failed bid to broker emergency loans sent share prices tumbling in Asia and in early European trade. The dollar also fell sharply, hitting a 13-year low against the yen.

For GM and Chrysler, the last hope for a government lifeline rested with the White House, which has so far refused to draw on the $700 billion Wall Street bailout fund for the reeling car companies. The financial bailout money “may be where they go next,” said Republican Senator John Thune.

Reid called on President George W Bush to reconsider his administration’s opposition to dipping into the Wall Street rescue fund, known as the Troubled Asset Relief Programme (TARP). “I would hope that the president who has worked so well with us the past few weeks on this legislation would now consider using the TARP money to help the auto industry and the workers of this country.”

Democrats initially pushed for a portion of the funds for the auto bailout but the Bush administration refused. The White House, which suffered a stinging political defeat after backing the Democrats’ proposal for the short-term auto rescue loans, did not say if it would relent on freeing up the financial bailout funds.

“It is disappointing that Congress failed to act tonight,” White House spokesman Scott Stanzel told AFP. “We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers and presented the best chance to avoid a disorderly bankruptcy,” Stanzel said. “We will evaluate our options in light of the breakdown in Congress.”

GM, which has warned it could run out of cash within weeks, said in a statement it was “deeply disappointed” at the result. Before the vote, the once mighty car company acknowledged that it was considering bankruptcy among other options and had hired a team of legal advisers.

Chrysler said it would “continue to pursue a workable solution to help ensure the future viability of the company.” GM and Chrysler are the most troubled of the iconic Big Three, with Ford in better financial shape but worried about the knock-on effects if their counterparts go down.

Along with Bush, president-elect Barack Obama had called on Congress to approve the bailout, citing the dangers of a “rippling effect” from the collapse of the companies.

Republican Senator Bob Corker, who spearheaded his party’s alternative proposal, said the breakdown came over differences on employee compensation, and said that a union representative from the United Auto Workers was present for the talks.

“We are about three words, three words, away from a deal,” he said. Democrat Chris Dodd, chairman of the Senate banking committee, criticised Republican senators for pushing for steep wage cuts and warned the auto industry’s fate was tied up with the wider economy.

“I’m deeply saddened. But more than saddened, I’m worried,” Dodd said. “This will fail, we will go home, and I’m afraid our country will be in deeper and deeper trouble.” For workers in the industry, “this will not be a joyous season wondering whether or not their jobs, their livelihoods, their homes, their children’s futures are at risk,” he said.

The legislation would have provided GM and Chrysler bridge loans to operate until March 31, the date by which they must have crafted a restructuring plan that ensures their long-term survival while repaying government aid. The bill also required the president to name a special designee, or “car czar,” who would oversee the process.

Foes of the plan have said that the automakers, and not taxpayers, must bear the burden of bad business decisions and declare bankruptcy.

As prospects for passage dimmed, US blue chips on Thursday tumbled 195.85 points (2.24 per cent) to 8,565.57 at the closing bell while the Nasdaq fell 57.60 points (3.68 per cent) to 1,507.88.

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