GM, Chrysler options slim

Bloomberg

"I dread looking at Wall Street [Friday]," Senate Majority Leader Harry Reid said on the Senate floor in Washington Thursday night. "It’s not going to be a pleasant sight." GM shares traded in Germany fell as much as 51 percent on Friday.

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 Friday, 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 Thursday 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 Thursday night. The bill "was the best chance to avoid a disorderly bankruptcy" for the automakers.

Bush repudiated
The Senate 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. President-elect Barack Obama, who resigned from the Senate last month, had also urged lawmakers Thursday to pass the measure. "We cannot simply stand by and watch this industry collapse," Obama said.

GM Chief Executive Officer Rick Wagoner has said repeatedly that the firm is trying to avoid bankruptcy because it would lead to liquidation as buyers opted for solvent car companies.

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.

Connecticut Democrat Christopher Dodd said the unresolved issue in the Senate talks was a Republican demand that unionized workers accept a reduction in wages next year, rather than later, to match wages of U.S. workers at foreign-owned companies, such as Toyota.

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.

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 is reluctant to do so without Congress assisting the firms.

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 chief executive Alan Mulally said his firm doesn’t need the loans, though he predicted Ford could be dragged into bankruptcy by the failure of GM.

GM is reeling from almost $73 billion in losses since 2004.