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Big Three on the brink

Who’s next?: GM chief Rick Wagoner is fighting to keep the world's biggest car-maker from bankruptcy.

US Senate opposition leaves Big Three facing the prospect of bankruptcy protection

General News logo12 Dec 2008

GENERAL Motors and Chrysler face the prospect of being forced into the bankruptcy courts within weeks after the United States Senate failed to agree to a short-term $US14 billion bailout for Detroit’s Big Three.

Although the House of Representatives approved a bill for government-secured loans on Wednesday night – voting 237-170 along party lines – the Senate last night blocked the rescue package.

After a day of negotiating, Senate majority leader Harry Reid told the house that the talks had collapsed and the bill would not be put to a vote.

“We have not been able to get this over the finish line,” Senator Reid said.

Republican leader Mitch McConnell blamed the collapse on the United Auto Workers, saying the union would not accept parity in pay, benefits and work rules with workers at Toyota’s and Honda’s US plants.

The majority of Republicans have been largely united in their belief that it would be better for the troubled automakers to file for Chapter 11 bankruptcy protection, which is not a full bankruptcy as we know it in Australia but would enable the troubled companies to break contracts and quickly restructure to become more profitable.

Unions are opposed to such a move – as are the Democrats of President-elect Barack Obama – because Chapter 11 would almost certainly mean more plant closures, lay-offs without packages and the end of what many describe as plush worker benefits that were negotiated in more profitable times.

Democrats argue that Chapter 11 would hasten the car-makers’ downfall because consumers would lose confidence in them and buy other brands instead.

Although Ford Motor Company is in better health than its rivals, the company says it would also be dragged down in the event of GM and Chrysler filing for Chapter 11 as that would inevitably lead to the collapse of the vital supplier network.

However, senior Republican senator John Ensign told a news conference that the bailout would do nothing to resolve the debt and production cost problems of the Big Three, and said there was little support for the proposal from his colleagues.

“I don’t think there was even a handful of Republicans who supported the bill in there,” Senator Ensign said.

Senator Ensign, who presided over a policy meeting that reported back to vice-president Dick Chaney, said the only way that General Motors, Chrysler and Ford could emerge healthy in the long-term would be to undergo restructuring through the bankruptcy process.

“If we don’t have the forced restructuring plans in place, many of us don’t believe American car companies will come out of this competitive and taxpayer money will be wasted at that point,” he said.

“What happens next? Do we bail out the hotel industry? Are we going to bail out the airline industry? If we do this one, why wouldn’t we do others?”

Read more:

The General on its knees

Big three embrace Obama

Even harder times hit the US

Big Three meltdown

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