By Jeff Green and Nicholas Johnston
Dec. 12 (Bloomberg) -- General Motors Corp. may be in bankruptcy within weeks, followed shortly by Chrysler LLC, after the U.S. Senate rejected a $14 billion rescue plan and the companies’ options for survival dwindled.
“I dread looking at Wall Street tomorrow,” Senate Majority Leader Harry Reid said on the Senate floor in Washington last night. “It’s not going to be a pleasant sight.”
The Senate thwarted the bailout plan in a procedural vote after talks failed in a dispute with Republicans over how quickly union wages should be cut. Asian stocks and U.S. index futures fell after the vote. The MSCI Asia Pacific Index slumped 3.7 percent to 84.85 as of 4:03 p.m. Tokyo time, while March futures on the Standard & Poor’s 500 Index slipped 4.1 percent.
President George W. Bush must now decide whether to let the companies collapse or find another way to channel government funds. Minutes after the vote failed last night, he was pressed by House Speaker Nancy Pelosi and Reid to tap funds from the Treasury’s $700 billion bank-rescue fund.
The Bush administration, which warned of a million lost jobs if the industry collapsed, will “evaluate our options in light of the breakdown in Congress,” White House spokesman Tony Fratto said in a statement last night. The bill “was the best chance to avoid a disorderly bankruptcy” for the automakers.
The vote was a repudiation of Bush, who personally lobbied for the bill. Only 10 Republicans in the Senate voted to move forward on the auto-rescue plan. Vice President-elect Joe Biden was one of 12 lawmakers who didn’t vote. President-elect Barack Obama, who resigned from the Senate last month, had also urged lawmakers yesterday to pass the measure.
Cannot ‘Stand By’
“We cannot simply stand by and watch this industry collapse,” Obama said during a Chicago news conference.
GM Chief Executive Officer Rick Wagoner told Congress last week and has said repeatedly that the automaker is trying to avoid bankruptcy at all costs because it would lead to liquidation as buyers opted for solvent car companies. GM lead director George Fisher said last week that the automaker considered and rejected the option and it was “way down the list” of alternatives.
Pelosi and Reid have no plans to return until next year. Plunging markets may put pressure on Congress to return to Washington, “but there was lots of pressure on them now,” said Gary Jacobson, a political scientist at the University of California, San Diego.
Wage-Cut Demand
Connecticut Democrat Christopher Dodd, who helped lead the negotiations, said the final unresolved issue in the Senate talks was a Republican demand that unionized autoworkers accept a reduction in wages next year, rather than later, to match wages of U.S. workers at foreign-owned companies, such as Toyota Motor Corp.
Treasury Secretary Henry Paulson has committed all but $20 billion of the first $350 billion of bank-rescue funds from the Troubled Asset Relief Program.
“I think that is where they go next,” Senator John Thune, a South Dakota Republican, said in an interview before the impasse, referring to TARP funds.
Treasury spokeswoman Jennifer Zuccarelli referred questions to the White House.
Another possibility is seeking cash from the Federal Reserve. While Fed Chairman Ben S. Bernanke hasn’t ruled out using emergency-lending authority to aid carmakers, he’s said he’s reluctant to do so without Congress also assisting the companies.
Fed ‘Reluctant’
“The Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance but, after due consideration, has decided not to act,” Bernanke wrote in a Dec. 5 letter to Dodd, the Senate Banking Committee chairman.
Pressure was already mounting on GM and Chrysler this week before the congressional failure as both faced demands from a small number of partsmakers for payments in advance because of the bankruptcy concerns, people familiar with the matter said.
GM said it will lack the minimum $11 billion it needs to pay its bills by the end of this month and Chrysler said it will run out of money early next year. Ford Motor Co. Chief Executive Officer Alan Mulally said his company doesn’t need the loans, though he predicted last week that Ford could be dragged into bankruptcy by the failure of GM.
GM said in a statement that it was “deeply disappointed that agreement could not be reached tonight in the Senate despite the best bipartisan efforts. We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.”
‘Obviously Disappointed’
Chrysler spokeswoman Lori McTavish said the company is “obviously disappointed in what transpired in the Senate and will continue to pursue a workable solution to help ensure the future viability of the company.”
GM is reeling from almost $73 billion in losses since 2004 and a 22 percent plunge in U.S. sales this year. The automaker last month said it lost $4.2 billion in the third quarter.
Chrysler has been battered by a 28 percent plunge in U.S. sales through November, the steepest drop among major automakers. It ended the third quarter with $6.1 billion in cash and needs at least $3 billion on hand to operate, Chief Executive Officer Robert Nardelli told Congress on Nov. 18.
Job losses would total 2.5 million to 3.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing, according to a Nov. 4 report from the Center for Automotive Research, which does studies for government agencies and companies.
‘Very Bad Christmas’
“This is going to be a very bad Christmas” for many people, Reid said on the Senate floor last night.
The Senate failure came when a bid to cut off debate on the bill the House passed Dec. 10 fell short of the required 60 votes. The vote on ending the debate was 52 in favor, 35 against. Earlier last night, negotiations on an alternate bailout plan failed.
A plan offered by Tennessee Republican Senator Bob Corker, which served as a basis for a possible compromise yesterday, would have required automakers to offer bondholders 30 cents on the dollar.
Automakers would also have had to convince the United Auto Workers to take half of the $23 billion it’s owed for health care as GM stock instead, and eliminate a program in which UAW workers are paid not to work if there are no tasks for them.
“We were about three words away from a deal,” Corker said.
To contact the reporters on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net; Jeff Green in Washington at jgreen16@bloomberg.net
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