Page last updated at 05:10 GMT, Saturday, 13 December 2008

White House considers auto rescue

Car union chief appeals for help

The White House says it is considering using money earmarked to rescue the US banking industry to bail out the country's struggling carmakers.

The White House said a disorderly bankruptcy in the motor industry would be a huge blow which the US economy could not withstand.

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

Meanwhile General Motors said it was temporarily stopping some production.

And Honda is also to cut back output in North America.

GM, which has been pleading for an emergency government loan to avert collapse, said it would halt 30% of its North American production "in response to rapidly deteriorating market conditions".

It saw vehicle sales fall 41% in November, when overall US car sales fell 26% industry wide.

General Motors dealership

The temporary shutdowns will affect 14 US factories as well as three in Canada and three in Mexico, reducing output by 250,000 vehicles in the first three months of 2009.

"The speed and severity of the US auto market's decline has been unprecedented in recent weeks as consumers reel from the collapse of the financial markets and the resulting lack of credit for vehicle financing," it added.

'Irresponsible'

Earlier this year, the US approved a $700bn (467bn) bail-out for the finance industry, known as the TARP programme.

It had previously been reluctant to use this money for other industries but White House spokeswoman Dana Perino said it would consider other options, including the use of TARP, to prevent a collapse of troubled automakers.

She added that it would be "irresponsible" to further damage the economy by allowing the Detroit car companies to fail.

"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," she added.

President-elect Barack Obama said he was disappointed that the Senate failed to act, adding that "millions of jobs rely directly or indirectly on a viable auto industry".

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"My hope is that the administration and the Congress will still find a way to give the industry the temporary assistance it needs while demanding the long-term-restructuring that is absolutely required," he said.

'Devastating'

The Big Three - Chrysler, General Motors and Ford - employ 250,000 people directly, and many more indirectly, in companies making auto parts and car dealerships.

The United Automobile Workers (UAW) union on Friday warned that if a bail-out was not forthcoming, the result would be "devastating."

The union's president, Ron Gettelfinger said he was confident that there were "enough sane" people in Washington to find a solution despite the Senate's defeat of the bail out bill.

Tense and emotional

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

Shares fell sharply around the world after the bail-out was rejected - with carmakers among the hardest hit.

However the glimmer of hope that the government would step in to help carmakers helped the Dow Jones index pull back early losses to finish ahead.

In Asia, stocks in Toyota, Honda and Nissan all lost at least 10%.

The Republicans refused to back the bail-out 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.

"We were about three words away from a deal," said Republican Senator Bob Corker.

"We solved everything substantively and about three words keep us from reaching a conclusion."

The BBC's Andy Gallacher in Washington said 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 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".

"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."

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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