12 Dec 2008

Fears of industry collapse as US auto bailout fails

10:28 pm on 12 December 2008

A proposed bailout of United States automakers failed in the Senate on Thursday night, raising the specter of an industry collapse that sent markets reeling and sparked fears it could deepen the recession.

"It's over with," Senate Majority Leader Harry Reid said of congressional efforts this year just before the Democratic proposal to extend up to $US14 billion to the stricken industry fell short of the needed votes on a procedural motion.

Pressure immediately shifted to the White House, with calls for President George W Bush to consider intervening with emergency financing.

General Motors Corp and Chrysler LLC have warned of near-term collapse if they did not receive a government bailout.

"I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," Mr Reid said on Thursday.

The vote all came down to one sticking point: the Republicans wanted the United Auto Workers Union to agree to swift wage cuts.

When that didn't happen, the $US14 billion bridging loan that had been approved by the House of Representatives, failed.

The car companies are now hoping to tap into the $US700 billion Wall Street bailout fund.

The House of Representatives on Wednesday passed its version of a Democratic-sponsored bailout that was virtually identical to the measure that fell in the Senate. Democrats hold a razor-thin majority in the Senate, which rejected the bill, 52 to 35.

The White House called congressional inaction a breakdown and said it would evaluate its options. But it is clear now that there will be no congressional action on a bailout this year.

Because of their shared suppliers and vendors, industry observers fear the failure of one Detroit auto manufacturer could drag down the other two, as well as other businesses.

General Motors, Ford Motor Co. and Chrysler employ nearly 250,000 people directly, and 100,000 more jobs at parts suppliers could hang on their survival.

The companies say one in 10 US jobs are tied to the auto sector.

Markets tumble

Markets across the Asia-Pacific region fell more than 3% on the development, with Japan's Nikkei average and Hong Kong's Hang Seng both down more than 5% at the close on Friday.

New Zealand's stock market was down 1.8%, while Australia's benchmark index was 2.43% lower.

The price of US crude tumbled by more than $US2 to $US45.90 a barrel, creeping back down toward a four-year low of $US40.50 hit earlier in December.

Global industry reeling

The global auto industry is reeling from depressed sales, made worse by the credit crunch and the US recession.

General Motors and Chrysler, which is owned by private equity group Cerberus Capital Management, sought billions in immediate aid to see them through March.

GM said in a statement it would "assess all of its options to continue our restructuring" and to "obtain the means to weather the current economic crisis."

Chrysler said it would continue "to pursue a workable solution to help ensure" the company's future viability.

Ford, in a better cash position, had asked for a hefty line of credit. It had no immediate comment.