The US car industry was left teetering on the edge last night as the Senate threw out a bill to inject $15bn into ailing GM and Chrysler, leaving the two manufacturers looking at the prospect of bankruptcy before the end of the year.
The stalling block appears to be a swathe of legislation aimed at cutting the power of the unions and pay and conditions of its members.
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The United AutoWorkers Union refused to bring its Big Three members' pay into line with foreign manufacturer's workforces by 2009, pointing out that they are on target to reach parity on a longer timescale.
It is thought that Souther Republican Senators – many of whom represent foreign automakers in their home states – were unwilling to commit federal funds because of those reasons, in a move that may spell the end for GM and Chrysler.
Ford does not have any immediate liquidity issues and is in much better shape than GM or Chrysler, but supported the bridge loan and wanted the option to draw on federal funds.
GM and Chrysler are thought to be a number of weeks away from bankruptcy, although the Bush administration says it will look at redirecting money from the TARP Wall Street bailout.
Analysts believe that a failure of one of the Big Three would impact on others are devastate supply lines. A failure of both would wipe out 1.8 million jobs in a 1-year period and eliminate nearly $70 billion from the federal balance sheet, analysts suggest.
It is not clear whether private-equity group Cerberus will allow Chrysler to slide into bankrutcpy without federal loans, even though it is thought to have sufficient funds to draw on to pump into the declining automaker.
Stock markets around the world fell around the world upon receiving the news that the bailout had not passed, while the crashing dollar will make exports from foreign manufacturer such as Toyota and Honda more problematic.
There will be an immediate focus on the prospects of Big Three-owned European manufacturers such as Opel, Vauxhall, Volvo and Saab.
German and Swedish governments have agreed credit lines for Opel and Saab and Volvo respectively, and Vauxhall is one of a number of UK manufacturers known to be talking to the UK government about state support.
The Spanish region of Aragon, where GM has an Opel plant, has offered its own €200m (£179m) credit guarantee.
GM Europe has stated that it will continue to operate as usual with government-backed guarantees, though the long-term survival of US-owned manufacturers without R&D and product development from a parent group seems uncertain.