Published December 13, 2008

Car wreck

US auto bailout fails as unions dig in - but White House hints at money from US$700b fund

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(Washington)
SAVING BIG 3
A pastor prays for the future of the US car industry during a special service in Detroit

IN a shocking development, the Senate has killed a US$14 billion package to help struggling US carmakers after a partisan dispute over union wage cuts derailed last-ditch attempts at a rescue before year's end.

The failure to reach agreement on Capitol Hill on Thursday night raised the spectre of financial collapse for General Motors and Chrysler, which some experts say may not be able to survive until the end of the year.

But as the gloom deepens, the White House said yesterday that it would consider tapping a US$700 billion financial rescue fund to prevent a collapse of the troubled carmakers. 'Given the current weakened state of the US economy, we will consider other options if necessary - including use of the Tarp programme,' said White House spokeswoman Dana Perino, referring to the Troubled Asset Relief Program initially geared to help financial services firms.

After Senate Republicans baulked at supporting the US$14 billion car rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a compromise but they deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.

The failure in Congress to provide a financial lifeline for General Motors and Chrysler was a bruising defeat for President George W Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.

'It's over with,' Senate Majority Leader Harry Reid said on the Senate floor, after it was clear that a deal could not be reached. 'I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight.' Mr Reid added: 'This is going to be a very, very bad Christmas for a lot of people as a result of what takes place here tonight.'

Wall Street opened lower with the Dow Jones Industrial Average falling 2.4 per cent to 8,365.25 while the S&P 500 was off 2.3 per cent to 853.95 and the Nasdaq slid 1.8 per cent to 1,480.15.

The Republican leader, Senator Mitch McConnell, said: '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.'

Moments later, the Senate failed to win the 60 votes needed to bring up the car rescue plan for consideration. The Senate voted 52-35.

The White House said it would consider alternatives but offered no assurances. While some hoped it would dip into the Treasury's US$700 billion financial system stabilisation fund to rescue the car industry, a Treasury spokeswoman said the fund was best used in trying to stabilise the nation's troubled financial sector and this was unlikely to change.

But Mr McConnell also held out slim hope for a compromise suggesting that Republicans could rally around a set of proposals by Senator Bob Corker.

Under his plan, the carmakers would have been required by March 31 to slash their debt obligations by two-thirds - an enormous sum given that General Motors alone has more than US$60 billion in outstanding debt.

The carmakers would also have been required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees based in the United States, and the companies would have to impose equivalent work rules.

It was over this proposal that the talks ultimately deadlocked. General Motors, Chrysler and industry experts have said that the two companies would likely not survive until the end of this month without government aid.

Several Republicans also blamed the autoworkers union.

'It sounds like the UAW blew it up,' said Republican Senatro David Vitter.

Senatro Richard Shelby, the senior Republican on the banking committee and a leading critic of the auto bailout proposal, said: 'We're hoping that the Democrats will continue to negotiate, but I think we have reached a point that labour has got to give. If they want a bill they can get one.' -- NYT