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(Summarized from CNNMoney.com)

Deal to move forward on $14 billion bailout measure falls short, possibly bankruptcy for GM and Chrysler?

The future of the U.S. auto industry was in trouble Friday morning after a proposal for $14 billion in federal loans died in a late night Senate vote.

The failure followed the collapse of negotiations between Senate members seeking a compromise that both parties, as well as the companies and the United Auto Workers union, could accept.

The late-night developments could doom General Motors to a bankruptcy and closure in the coming weeks, with Chrysler LLC potentially following close behind.

While Ford Motor has more cash on hand to avoid an immediate crisis, its production could be disrupted by problems in the supplier base, as could the production of overseas automakers with U.S. plants such as Toyota Motor and Honda Motor.

"We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis," according to the GM statement.
GM has continually said it could not continue to operate if it is forced to file for bankruptcy.

In response to reports that the company has hired a prominent bankruptcy attorney, GM said its board "is meeting frequently and monitoring the situation very closely and is committed to considering all options -- as is management -- and has engaged appropriate advisors for all contingencies."

However, the Big Three could still wind up getting government funding. Bush officials warned wavering GOP senators earlier Thursday that if they didn't support the legislation, the White House will likely be forced to tap funds from the Wall Street bailout to lend them money, two Republican congressional officials told CNN.

The White House has been strongly opposed to using any of the $700 billion in bank bailout funds to help the auto industry, but the Bush administration has also said the Big Three must get some financial assistance soon.

While the package was far less than the $34 billion requested by the automakers earlier this month, it would have seen them through their current cash crisis.

GM has said it needs $4 billion by the end of the month or its cash reserves will fall below the level it needs to continue operations. It needs another $6 billion in the first two months of 2009, according to its request to Congress. Chrysler had said its cash would run out early next year and it would need $4 billion in the first quarter to continue operations.

Hopes for compromise quickly faded

Senate Minority Leader Mitch McConnell, R-Ky., said the sticking point was the United Auto Workers union's refusal to put employees at U.S. auto manufacturers at "parity pay" with U.S. employees at nonunion plants operated by foreign automakers in the United States.

Negotiations centered around proposals from Sen. Bob Corker, R-Tenn., that would have set dates in 2009 by which the automakers receiving the loans had to reach cost cutting agreements with unions and creditors or be forced into bankruptcy.

Corker said the two sides were very close to a deal and stumbled on the deadline for the union to agree to the reduced pay.

"We are about three words away from a deal," Corker said.

Currently, analysts estimate the union workers at U.S. automakers make about $3 to $4 per hour more than the non-union U.S. employees of foreign automakers like Toyota and Honda, according to the Center for Automotive Research.

The benefit costs are significantly greater for U.S. automakers, though, because they have to pay health care costs for hundreds of thousands of retirees. The union agreed to close much of that gap in the 2007 labor agreements by shifting responsibility for retiree health care to union-controlled trust funds. But those changes won't take effect until 2010.

The House easily passed the bailout bill Wednesday night but it quickly ran into trouble in the Senate, where Republicans objected to several provisions.

Labels: automotive bailout