US Senate throws out $14bn car industry rescue

A $14bn (€10.5bn) emergency rescue for the big three US car manufacturers collapsed in the Senate today after a union refused to accept Republican demands for swift pay cuts.

Cross-party talks on the rescue broke down over the Republican demands that the union agree to steep cuts by 2009 to bring their pay into line with Japanese car makers.

Senate majority Leader Harry Reid said he hoped President George Bush would tap the $700bn (€525bn) Wall Street bail-out fund for emergency aid to the car makers.

General Motors and Chrysler say they could be weeks from collapse. Ford says it does not need government help now, but its survival is far from certain.

The White House said today it was considering its options in light of the breakdown.

“It’s disappointing that Congress failed to act tonight,” a White House statement said.

“We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable.”

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

The implosion followed an unprecedented marathon overnight negotiations in Washington among unions, the car industry and politicians in efforts to salvage the rescue plan that had been approved by the House of Representatives on Wednesday night, at a time of soaring job losses and widespread economic turmoil.

The group came close to agreement early today, but it stalled over the union’s refusal to agree to wage cuts before its current contract expired in 2011. Republicans, in turn, balked at giving the car makers government aid.

Mr Reid called the Bill’s collapse “a loss for the country”, adding: “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

“In the midst of already deep and troubling economic times, we are about to add to that by walking away,” said Democratic senator Chris Dodd, the Banking Committee chairman who led negotiations on the package.

Alan Reuther, the United Auto Workers union legislative director, would not comment as he left a meeting room during the negotiations.

The stunning disintegration was eerily reminiscent of the defeat of the $700bn Wall Street bail-out in the House, which sent the Dow tumbling and politicians back to the drawing board to draft a new agreement to rescue financial institutions and halt a broader economic meltdown. That measure ultimately passed and was signed by President Bush.

It was not immediately clear, however, how the car industry aid measure might be resurrected in a bail-out-fatigued post-election Congress, with Mr Bush’s influence at a low ebb.

GM said in a statement it was ``deeply disappointed'' that the bi-partisan agreement faltered.

“We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis,” the company said.

Chrysler said it “will continue to pursue a workable solution to help ensure the future viability of the company”.