General Motors Corp. and Chrysler LLC, which have said they could run out of cash within weeks, have few options left after the dramatic defeat in the Senate of a $14 billion bailout for the domestic auto industry.
Its demise late Thursday prompted immediate calls from lawmakers in both parties for the Bush administration to tap into the $700 billion Wall Street bailout to rescue the beleaguered auto industry. The bill failed after talks broke down over the refusal of the United Auto Workers union to meet Republican demands for aggressive wage reductions.
The Senate rejected the bailout 52-35 on a procedural vote — well short of the 60 required — after the talks fell apart.
"I dread looking at Wall Street," said Senate Majority Leader Harry Reid in anticipation of Friday's stock market reaction. "It's not going to be a pleasant sight."
The Bush administration has repeatedly said the Wall Street bailout fund should not be used for emergency aid to the automakers because it was designed to restore stability to the financial sector. Following the vote, the White House said it was studying its options.
General Motors and Chrysler are in the most immediate danger while Ford Motor Co. has said it does not need federal help now, but could face collateral damage if one of its domestic rivals fell. With the economy in recession, the auto industry has struggled under the weight of lackluster sales and choked credit markets.
Detroit's carmakers employ nearly a quarter-million workers, and more than 730,000 others produce materials and parts for cars. If one of the automakers declared bankruptcy, some estimate as many as 3 million U.S. jobs could be lost next year.
The White House said it was disappointed by the vote and the legislation "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."
Many congressional Republicans and some economists said the companies would be best to pursue a prearranged bankruptcy that would allow them to restructure quickly. But most Democrats and the carmakers rejected that, arguing it would quickly lead to liquidation because consumers would never buy cars from a bankrupt auto company.
As it lobbied unsuccessfully on Thursday, White House officials said the weak economy couldn't afford the collapse of the auto industry. President-elect Barack Obama said an industry shutdown would have a "devastating ripple effect" on the already battered economy.
GM said in a statement is was "deeply disappointed" that the bipartisan 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 was also disappointed and would "continue to pursue a workable solution to help ensure the future viability of the company."
The companies efforts for funding failed after a marathon set of negotiations at the Capitol among labor, the auto industry and lawmakers who bargained into the night to salvage the auto bailout at a time of soaring job losses and widespread economic turmoil.
The group came close to agreement, but it stalled over the UAW's refusal to agree to wage cuts before their current contract expires in 2011. Republicans, in turn, balked at giving the automakers federal aid.
The UAW did not immediately react to the failure of the Senate proposal.
Aid to the automakers gained urgency last week when the government reported the economy had lost more than a half-million jobs in November, the most in any month for more than 30 years.
The stunning disintegration of the auto bailout proposal was eerily reminiscent of the defeat of the $700 billion Wall Street bailout in the House, which sent the Dow tumbling and lawmakers 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 Bush.
It wasn't immediately clear, however, how the auto aid measure might be resurrected in a bailout-fatigued, postelection Congress, with Bush's influence at a low ebb.
Earlier in the week, the House approved a bill that would have created a Bush-appointed overseer to dole out the money. At the same time, carmakers would be compelled to return the aid if the "car czar" decided the carmakers hadn't done enough to restructure by spring.
Some Senate Democrats joined Republicans in turning against the House-passed bill, despite increasingly urgent expressions of support from the White House and Obama for quick action to spare the economy the added pain of a potential automaker collapse.