Page last updated at 10:20 GMT, Friday, 12 December 2008

US car bail-out fails in Senate

Reaction from Senate majority leader Harry Reid

A $14bn (9.4bn) bail-out deal for the US car industry has failed to get Senate support, raising fears of job cuts and a possible industry collapse.

Bipartisan talks on the rescue plan collapsed over Republican demands that the United Auto Workers (UAW) union agree to swift wage cuts.

The White House said the plan was American carmakers' "best chance to avoid a disorderly bankruptcy".

Shares fell sharply around the world on the news.

Japan's Nikkei share index fell 484.68 points, or 5.6%, to 8253.87, with carmakers among the hardest hit. Shares in Toyota, Honda and Nissan all fell by at least 10%.

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The three US auto companies need to be seriously restructured in order to survive.
Chris, UK

German, French and UK stocks all opened lower on the news, with the FTSE-100 index of leading shares down 176.3 points at 4,211 at midday.

Some Democrats have now called on President Bush to use some of the $700bn bail-out earmarked for Wall Street to help the car industry.

Tense and emotional

The Republicans left the closed-door meetings after the UAW union refused to cut wages next year to bring them into line with their Japanese counterparts. UAW's current contract with the car makers expires in 2011.

General Motors dealership
I dread looking at Wall Street tomorrow - it's not going to be a pleasant sight
Senate Majority Leader Harry Reid

"We were about three words away from a deal," said Republican Sen Bob Corker. "We solved everything substantively and about three words keep us from reaching a conclusion."

Alan Reuther, the UAW's legislative director, declined to comment to reporters as he left a meeting room during the negotiations, according to the Associated Press.

The BBC's Andy Gallacher in Washington says it was always going to be a battle to get the US Senate to approve the $14bn bridging loan.

With a majority of just one in the Senate, the Democrats needed some Republicans to back the bill as some in their own party were expected to vote against it.

The atmosphere in the Senate was tense and at times emotional, our correspondent says, as the Democrats made last-minute pleas to get their Republican counterparts to vote in favour of helping America's biggest car domestic makers, Ford, Chrysler and General Motors.

Millions affected

The three companies employ 250,000 people directly and the failure of the bail-out raises the prospect of huge job losses.

The Senate majority leader, Harry Reid, said he was "terribly disappointed" when it became clear the vote had collapsed, calling it "a loss for the country".

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"Millions of Americans, not only the auto workers but people who sell cars, car dealerships, people who work on cars are going to be directly impacted and affected."

White House spokesman Tony Fratto said the government would evaluate its options in light of the collapse of the negotiations, but did not elaborate.

"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," he said.

Some Democrat politicians have called on President Bush to use some of the $700bn bail-out for Wall Street to help the car industry.

Help needed

The deal would have given the Big Three carmakers access to emergency funding to help them cope with the sharp downturn in sales because of the global financial crisis.

General Motors and Chrysler have said they risk ruin without immediate aid. Ford says it may need funds in the future.

The bosses of the three firms had previously asked for $34bn from Congress.

They have all seen sales fall sharply this year in the US, partly reflecting an industry-wide fall, and partly because their large gas-guzzling vehicles are no longer what customers want.

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