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Hopes of a pre-Christmas rescue of Detroit’s Big Three automakers – in particular General Motors and Chrysler which are fast running out of cash – faded last night after a Democrat-sponsored bill that passed the House of Representatives was torpedoed by Republicans in the Senate by 52 votes to 35 with 10 Republicans joining 40 Democrats and 2 independents in favour.

The compromise $14bn bailout deal had needed 60 votes to pass the upper house. The senate majority leader, Nevada Democrat Harry Reid of Nevada, called it “a loss for the country”, adding: “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight. This is going to be a very bad Christmas for many people.”

Some observers suggest the bill’s collapse was revenge against the United Auto Workers union by senators from southern states with foreign-owned, non-union ‘transplant’ car factories who want to force the UAW to give up the higher wages and benefits enjoyed by Detroit workers. But the UAW has already made massive concessions and had indicated a willingness to negotiate further, if not meeting a deadline the Republican senators wanted.

It now appears that GM and Chrysler – who both have said they will be all but out of cash by the end of this month – can only avoid bankruptcy if the Bush administration dips into the $15bn or so left of the first half of the of the $700 billion Wall Street bailout package, a move it has previously rejected.

Auto industry lobbyists last night said the White House might try to link funding for automakers to winning approval from Congress to spend the second $350bn.

“The time has come for the president to use those funds to keep the auto industry alive,” Republican senator Kit Bond said.

White House spokesman Tony Fratto said president Bush was considering the options.

“It’s disappointing that Congress failed to act,” he told the Detroit News. “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 while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable. We will evaluate our options in light of the breakdown in Congress.”

Whether the UAW would accept concessions demanded by Senate Republicans, including agreeing to wage parity with transplant workers by 2009, was key to the bill passing, the Detroit News said. The UAW agreed to do it, but without a specific date.

“You can’t make an honest economic argument that you’re demanding parity in pay. What, Toyota’s going to decide what the wages and benefits are?” Democrat senator Chris Dodd said, adding that the UAW agreed that parity would eventually take place. “This was an anti-labour move,” Dodd told the Motown paper.

Chrysler and GM spokespeople said their companies would continue to consider their options and do their best to keep trading but GM nonetheless has hired a bankruptcy law firm as an adviser and Chrysler, which as already sought bankruptcy advice, was reportedly negotiating with suppliers demanding cash on delivery.

Ratings agency Fitch said it would likely regrade suppliers following the Congress vote.

Chrysler told the Detroit News it would meet with suppliers on Friday (12 December) “to keep them updated on our situation”.

After GM asked for $4bn in December and another $4bn as part of an $18bn request for emergency aid, . Chrysler wanted $7bn with $4bn of that to survive to 31 March and Ford asked for a $9bn credit line, the House of Representatives, after lengthy Democrat-led negotiations with the Bush administration, voted through a $14bn aid package on Thursday.

But the bill put before the Senate imposed much tougher conditions on automakers including compulsory bankruptcy if GM and Chrysler didn’t get specific concessions from key stakeholders, in particular the UAW, by March.

The Detroit News noted that Democrat senator Barbara Boxer of California, though a regular critic of the automakers, urged members to pass the emergency funds, noting that southern states like Tennessee and Mississippi have offered hundreds of millions of dollars in tax breaks to woo foreign auto plants.

“Why don’t I hear my colleagues from Tennessee or Mississippi out here saying ‘Whoa that was a bad mistake. Taxpayers shouldn’t be on the hook.’ ” Boxer was quoted as saying.

“Something’s wrong. Is this about the workers because they are tough and they joined a union? What is this? It doesn’t smell right.”

Republican Senate leader Mitch McConnell told the New York Times: “We have had before us this whole question of the viability of the American automobile manufacturers. None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.”

He added: “The administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn’t work.”

Senator Bob Corker of Tennessee, soon to be home to a new Volkswagen plant and lead negotiator for the Republicans, told Reuters the collapse in negotiations came because Democrats were unwilling to adopt a 2009 deadline for union worker concessions rather than a date in 2011.