Auto Bailout Rejected by U.S. Senate

Washington, DC, Dec. 12, 2008--U.S. automakers are depending upon a reluctant White House to quickly provide a multibillion lifeline to help them avoid imminent collapse after the Senate rejected an automotive bailout plan.

General Motors Corp. and Chrysler LLC, which have said they could run out of cash within weeks, have few options left after the dramatic defeat in the Senate of a $14 billion bailout for the domestic auto industry.

According to Senator Bob Corker, a member of the Senate Banking Committee, General Motors has $62 Billion worth of debt and from a market capitalization standpoint is only worth $2 Billion.  "It would be irresponsible for the government to loan money to a company with that type of balance sheet without first asking their bond holders and the UAW to make major concessions that will allow the company to turn itself around."  

Its demise late Thursday prompted immediate calls from lawmakers in both parties for the Bush administration to tap into the $700 billion Wall Street bailout to rescue the beleaguered auto industry. The bill failed after talks broke down over the refusal of the United Auto Workers union to meet Republican demands for aggressive wage reductions.

The Senate rejected the bailout 52-35 on a procedural vote -- well short of the 60 required -- after the talks fell apart.

"I dread looking at Wall Street," said Senate Majority Leader Harry Reid in anticipation of Friday's stock market reaction. "It's not going to be a pleasant sight."

The FTSE 100 of leading British shares was down 169.74 points, or 3.9 percent, at 4,218.95, while Germany's DAX fell 230.35 points, or 4.8 percent, to 4,536.85. The CAC-40 in France fell 181.02 points, or 5.5 percent, to 3,125.11.

Earlier, Asian markets tumbled, with Japan's Nikkei 225 stock average down 484.68 points, or 5.6 percent, to 8,235.87. Hong Kong's Hang Seng index slid 5.5 percent to 14,758.39.

The Bush administration has repeatedly said the Wall Street bailout fund should not be used for emergency aid to the automakers because it was designed to restore stability to the financial sector. Following the vote, the White House said it was studying its options.

"Plan B is the president," said Sen. Carl Levin, D-Mich. House Speaker Nancy Pelosi said action by President George W. Bush was the "only viable option."

In a healthy economy over 17 million cars are sold a year in the U.S. but this year the industry will be sell 11 million cars - a decline of 35%.