WASHINGTON (Reuters) – A proposed bailout of U.S. automakers failed in the Senate on Thursday night, raising the specter of an industry collapse that sent Asian 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 $14 billion to the stricken industry fell short in voting 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 sought billions in aid to see them through March and have warned of potential collapse if they did not receive a bailout.
“I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight,” Reid said.
Markets across the Asia-Pacific region fell more than 3 percent on the development, with Japan’s Nikkei average and Hong Kong’s Hang Seng both down more than 5 percent. European and U.S. stocks were expected to fall about 5 percent.
Shares of Toyota Motor Corp were off 10 percent and Honda Motor Co fell 12.5 percent on worries about massive disruptions in the U.S. economy if one or more of its automakers collapse.
U.S. crude prices fell by more than $2 to $45.90 a barrel, while the yen hit a 13-year high against the U.S. dollar.
Because of their shared suppliers and vendors, industry observers fear the failure of one Detroit manufacturer could drag down the other two as well as other businesses.
Lawmakers have been among the industry’s biggest critics. But Democrats and some Republicans — and the White House in the end — scrambled to put together a legislative lifeline because no one wanted to be blamed for a deepening U.S. recession if any of the companies went bankrupt.
Job losses hit a 34-year high in November and the unemployment rate reached a 15-year high.
GM, 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 U.S. jobs are tied to the auto sector, which adds up to several million.
GM and Chrysler both said that in the face of their cash crises, they had hired outside advisers to help them explore possible bankruptcy, which they found had too many drawbacks.
“It’s going to be very difficult for them not to file for bankruptcy,” Erich Merkle, consultant at Crowe Chizek in Grand Rapids, Michigan, said of the two if they did not get help.
“GM has probably got until January and I would suspect the next step would be that GM will provide a date and say that at this date we will file,” Merkle said.
The White House called congressional inaction a breakdown and said it would evaluate its options.
“It has now fallen to the president to take action,” said Sen. Carl Levin, a Michigan Democrat who has spearheaded efforts for a month to get help for Detroit.
Bush should “move now,” said Republican Sen. George Voinovich of Ohio, adding, “The dominoes are already falling” throughout the United States.”
Reid and House Speaker Nancy Pelosi called on Bush to immediately explore short-term financial help, including tapping a $700 billion fund created in October for the Treasury Department to assist the financial services industry.
The Bush administration has so far resisted Democratic appeals to take that step.
A Treasury spokeswoman said after the bailout bid collapse on Thursday that its position remained that the funds were only intended to help the financial sector.
Sen. Christopher Dodd, a Connecticut Democrat, said it was possible Congress could take a “second crack” at a rescue in January when Democrats will have larger majorities in both houses. President-elect Barack Obama favors help for automakers.
‘THREE WORDS AWAY FROM A DEAL’
The development followed intense discussions on a possible 11th-hour compromise that participants said fell apart over proposed wage concessions by the United Auto Workers union.
“We were three words away from a deal,” said Sen. Bob Corker, a Tennessee Republican who proposed the alternative and led the talks.
Dodd said the main issue of disagreement was the date to require the Detroit autoworkers’ pay parity with workers at foreign-owned U.S. auto plants.
The UAW could not immediately be reached for comment.
GM and Chrysler, which is owned by private equity group Cerberus Capital Management, sought billions in immediate aid to see them through March.
The industry’s fortunes have plummeted in recent months as the credit crunch choked off corporate and consumer lending. Most car buyers finance their purchases. U.S. auto sales fell 36.7 percent in November and most analysts expect the downturn in sales to deepen in 2009 under the financial crisis.
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.
The three have been cutting thousands of salaried and hourly workers and closing plants in North America due to those market share losses, driven in part by slack demand for big gas-guzzling sport utility vehicles that had driven profits.
An industry that pioneered large-scale assembly line production and was the backbone of industrial America for most of the past century was unable to persuade enough senators to support the rescue effort. Republicans are concerned the companies were not restructuring fast enough and the bailout would become a bottomless pit for taxpayers.
SUPPORT COMES UP SHORT
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 voted 52-35 in favor, short of the 60 votes needed to advance the measure.
“These companies could be saved. I’ve said I think they are bloated, their management is bloated. These companies either already failed or are fading and that is a shame,” said Alabama Republican Richard Shelby, who has opposed any bailout.
Though nearly three dozen senators rejected the rescue, some of the most vocal opponents were senators with foreign auto plants in their states, including Alabama and Tennessee.
Years of market share losses to Japanese rivals such as Toyota and Honda have weakened the Detroit companies.
Polls show Americans split on bailing out Detroit, widely criticized for fighting tougher fuel efficiency standards and poor model designs that have left the companies gasping with a stable of products losing popularity with consumers.
The lack of a bailout also leaves vulnerable U.S. auto parts suppliers with deep exposure to the “Detroit Three” such as American Axle and Visteon Corp.
By John Crawley and Richard Cowan
(Additional reporting by Ross Colvin, Matt Spetalnick, Kevin Drawbaugh, Kevin Krolicki, Julie Vorman, Tom Ferraro, Jeremy Pelofsky, David Bailey, Donna Smith; Editing by Eric Walsh)